Note 6 - Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

6. Income Taxes

Income before taxes (in thousands):  

	Year Ended December 31,
	2013		2012
Domestic	$	1,050	$	3,211
Foreign		1,982		697
Total:	$	3,032	$	3,908

The provision for income tax expense is summarized as follows (in thousands):

	Year Ended December 31,
	2013			2012
Current:
Federal	$	(2	)	$	59
Foreign		845			423
State		201			171
Deferred:
Federal		(1,700	)		-
Foreign		(262	)		(194	)
State		(200	)		-
Total Provision:	$	(1,118	)	$	459

The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows (in thousands):

	Year Ended December 31,
	2013			Rate			2012			Rate
Provision for income taxes at federal statutory rate	$	1,031			34.00	%	$	1,329			34.00	%
State income taxes, net of federal benefit		47			1.55	%		134			3.43	%
Permanent differences		226			7.45	%		20			0.51	%
Change in valuation allowance		(2,348	)		(77.43	%)		(1,247	)		(31.91	%)
Foreign tax rate differential		(91	)		(2.99	%)		6			0.15	%
Federal Alternative Minimum Tax		(2	)		(0.07	%)		61			1.56	%
Change in Uncertain Tax Position Reserve		39			1.29	%		28			0.72	%
Other		(20	)		(0.67	%)		128			3.28	%
Provision for income taxes	$	(1,118	)		(36.87	%)	$	459			11.74	%

Deferred taxes consist of the following (in thousands):	December 31,
	2013			2012
Deferred tax assets:
Net operating loss carry forwards	$	3,218		$	3,671
Deferred revenue		100			93
Allowance for doubtful accounts and other receivable		26			33
Share-based compensation expense		578			659
Foreign subsidiaries		456			201
Depreciation		345			171
Acquisition costs		51			51
Other		176			175
Valuation allowance		(1,900	)		(4,248	)
Total deferred tax assets		3,050			806
Deferred tax liabilities:
Goodwill		134			134
Foreign subsidiaries		9			7
Capitalized software development costs		551			471
Total deferred tax liabilities		694			612
Net deferred taxes	$	2,356		$	194

At December 31, 2013, and December 31, 2012, the Company has federal and state NOL carryforwards of $8.5 million and $9.6 million, respectively, which if unused will expire in years 2017 through 2029.

Approximately $2.3 million of the NOLs were incurred prior to the acquisition of PIA in 1999. The aquisition resulted in a change of ownership under Internal Revenue Code ("IRC") section 382 and placed a limit on the amount of pre-acquisition NOLs that may be used each year to reduce taxable income. The annual limitation is $657,500.

As of December 31, 2013, the Company's deferred tax assets were primarily the result of U.S. net operating loss carryforwards. A valuation allowance of $1.9 million and $4.2 million was recorded against its gross deferred tax asset balance as of December 31, 2013, and December 31, 2012, respectively. For the years ended December 31, 2013, and December 31, 2012, the Company recorded a net valuation allowance release of $1.9 million and $0, respectively, on the basis of management's reassessment of the amount of its deferred tax assets that are more likely than not to be realized.

As of each reporting date, the Company's management considers new evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets. As of December 31, 2013, the Company achieved four years of cumulative pre-tax income in the U.S. federal tax jurisdiction, management determined that sufficient positive evidence existed as of December 31, 2013, to conclude that it is more likely than not that additional deferred taxes of $1.9 million are realizable, and therefore, reduced the valuation allowance accordingly.

The Company does not provide currently for U.S. income taxes on the undistributed earnings of its profitable foreign subsidiaries (which are approximately $1.2 million as of December 31, 2013), since, at the present time, management expects any earnings to be reinvested in the foreign subsidiaries and not distributed. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes, which could potentially be offset by foreign tax credits. Distribution of those earnings can also subject the Company to related withholding taxes payable to various non-U.S. jurisdictions. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculations.

A reconciliation of the beginning and ending amount of uncertain tax position reserves is as follows (in thousands):

	Year Ended December 31,
	2013		2012
Beginning balance	$	73	$	55
Additions for tax provisions of prior years		29		18
Ending balance	$	102	$	73

Interest and penalties that the tax law requires to be paid on the underpayment of taxes should be accrued on the difference between the amount claimed or expected to be claimed on the return and the tax benefit recognized in the financial statements. The Company's policy is to record this interest and penalties as additional tax expense.

Details of the Company's tax reserves at December 31, 2013, are outlined in the table below (in thousands):

	Taxes		Interest		Penalty		Total Tax Liability
Domestic
State	$	102	$	23	$	7	$	132
Federal	–		–		–		–
International	–		–		–		–
Total reserve	$	102	$	23	$	7	$	132

In management's view, the Company's tax reserves at December 31, 2013, for potential domestic state tax liabilities were sufficient. The Company has evaluated the tax liabilities of its international subsidiaries and does not believe a reserve is necessary at this time.

SPAR and its subsidiaries file numerous consolidated, combined and separate company income tax returns in the U.S. Federal jurisdiction and in many U.S. states and foreign jurisdictions. With few exceptions, SPAR is subject to U.S. Federal, state and local income tax examinations for the years 2009 through the present. However, tax authorities have the ability to review years prior to the position taken by the Company to the extent that SPAR utilized tax attributes carried forward from those prior years.