Note 5 - Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

5. Income Taxes

Income before income taxes is summarized as follows (in thousands):

	Year Ended December 31,
	2014		2013
Domestic	$	1,265	$	1,050
Foreign		2,158		1,982
Total:	$	3,423	$	3,032

The income tax benefit is summarized as follows (in thousands):

	Year Ended December 31,
	2014			2013
Current:
Federal	$	15		$	(2	)
Foreign		623			845
State		116			201
Deferred:
Federal		(1,525	)		(1,700	)
Foreign		(8	)		(262	)
State		(169	)		(200	)
Net benefit	$	(948	)	$	(1,118	)

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 (dollars in thousands):

	Year Ended December 31,
	2014			Rate			2013			Rate
Provision for income taxes at federal statutory rate	$	1,164			34.00	%	$	1,031			34.00%
State income taxes, net of federal benefit		37			1.08	%		47			1.55%
Permanent differences		(79	)		(2.31	)%		226			7.45%
Change in valuation allowance		(1,900	)		(55.51	)%		(2,348	)		(77.43%	)
Foreign tax rate differential		(161	)		(4.70	)%		(91	)		(2.99%	)
Other		(9	)		(0.26	)%		17			0.55%
Net benefit	$	(948	)		(27.70	)%	$	(1,118	)		(36.87%	)

Deferred taxes consist of the following (in thousands):	December 31,
	2014		2013
Deferred tax assets:
Net operating loss carry forwards	$	3,163	$	3,218
Deferred revenue		157		100
Allowance for doubtful accounts and other receivable		80		26
Share-based compensation expense		604		578
Foreign subsidiaries		464		456
Depreciation		174		345
Acquisition costs		–		51
Other		166		176
Valuation allowance		–		(1,900	)
Total deferred tax assets		4,808		3,050
Deferred tax liabilities:
Goodwill		128		134
Foreign subsidiaries		–		9
Capitalized software development costs		622		551
Total deferred tax liabilities		750		694
Net deferred taxes	$	4,058	$	2,356

At December 31, 2014, and December 31, 2013, the Company has Federal and State NOL carryforwards of $8.4 million and $8.5 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 Merchandising Services, Inc. in 1999. The acquisition 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 was recorded against its gross deferred tax asset balance as of December 31, 2013 on the basis of management's reassessment of the amount of its deferred tax assets that were 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, 2014, 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, 2014, 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 $1.6 million as of December 31, 2014), 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,
	2014		2013
Beginning balance	$	102	$	73
Additions for tax provisions of prior years		11		29
Ending balance	$	113	$	102

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, 2014, are outlined in the table below (in thousands):

	Taxes		Interest		Penalty		Total Tax Liability
Domestic
State	$	113	$	30	$	9	$	152
Federal		–		–		–		–
International		–		–		–		–
Total reserve	$	113	$	30	$	9	$	152

In management's view, the Company's tax reserves at December 31, 2014, 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 2010 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.