Note 7 - Income Tax Expense

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Aggregate income tax provisions consist of the following (in thousands):

	Years Ended December 31,
	2020			2019			2018
Current:
Federal	$	12,997		$	3,049		$	3,613
State and local		1,956			1,074			643
Foreign		486			502			789
		15,439			4,625			5,045
Deferred Taxes:
Deferred tax (benefit) provision		(5,009	)		(1,405	)		(625	)
Income tax expense	$	10,430		$	3,220		$	4,420

The significant components of the deferred income tax (liability) asset are as follows (in thousands):

	December 31,
	2020			2019
Deferred income tax assets:
Pension accruals	$	3,742		$	2,588
Operating reserves and other accruals		5,110			2,540
Tax credits		513			923
Valuation allowance on tax credits		-			(923	)
Deferred income tax liabilities:
Book carrying value in excess of tax basis of property		(2,116	)		(1,544	)
Book carrying value in excess of tax basis of intangibles		(5,780	)		(7,024	)
Tax effect of revenue recognition standard ASC 606		(1,021	)		(1,771	)
Deferred expenses		(898	)		(1,831	)
Net deferred income tax liability	$	(450	)	$	(7,042	)

The difference between the total statutory Federal income tax rate and the actual effective income tax rate is accounted for as follows:

	Years Ended December 31,
	2020			2019			2018
Statutory federal income tax rate		21.0	%		21.0	%		21.0	%
State and local income taxes, net of federal income tax benefit		1.3	%		4.8	%		2.0	%
Rate impacts due to foreign operations		(4.5	%)		(3.9	%)		(2.7	%)
Changes in uncertain tax positions		0.2	%		1.7	%		0.4	%
Compensation related		2.3	%		(0.2	%)		1.4	%
R&D tax credits		(0.3	%)		(0.9	%)		(0.4	%)
Other		0.3	%		(1.4	%)		(1.0	%)
Effective income tax rate		20.3	%		21.1	%		20.7	%

The Tax Cuts and Jobs Act enacted on December 22, 2017 imposed a U.S. tax on global intangible low taxed income (“GILTI”) that is earned by certain foreign affiliates owned by a U.S. shareholder. The computation of GILTI is generally intended to impose tax on the earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment. In accordance with guidance issued by FASB, the Company made a policy election to treat future taxes related to GILTI as a current period expense in the reporting period in which the tax is incurred. Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines it no longer intends to permanently reinvest such earnings outside the United States. The Company expects to permanently reinvest the earnings from its wholly-owned Brazilian and UK subsidiaries, and accordingly, has not provided deferred taxes on the subsidiaries’ undistributed net earnings or basis differences. The Company believes that the tax liability that would be incurred upon repatriation of the earnings from its Brazilian and UK subsidiaries is immaterial at December 31, 2020.

Only tax positions that meet the more-likely-than-not recognition threshold are recognized in the financial statements. As of December 31, 2020 and 2019, we had $1.2 million and $0.9 million, respectively, of unrecognized tax benefits, all of which, if recognized, would favorably affect the annual effective income tax rate. We do not expect any significant amount of this liability to be paid in the next twelve months. Accordingly, the balance of $1.2 million as of December 31, 2020 is included in other long-term liabilities.

Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows (in thousands):

	December 31,
	2020			2019
Balance at the beginning of year	$	681		$	477
Additions based on tax positions related to the current year		134			128
Additions for tax positions of prior years		286			173
Reductions due to lapse of statute of limitations		(108	)		(97	)
Balance at the end of year	$	993		$	681

We recognize interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes. During the years ended December 31, 2020, 2019 and 2018, we recorded $0.2 million, $0.2 million and $0.1 million, respectively, for interest and penalties, net of tax benefits. During each of the years 2020, 2019 and 2018, we reduced the liability by $0.1 million for interest and penalties due to lapse of statute of limitations. At December 31, 2020 and 2019, we had $0.2 million accrued for interest and penalties, net of tax benefit.

We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $0.3 million within the next twelve months due to the closure of tax years by expiration of the statute of limitations and audit settlements related to various state tax filing positions. The earliest year open to federal examinations is 2017 and significant state examinations is 2014.