INCOME TAXES

6 Months Ended

Jul. 31, 2023

INCOME TAXES

INCOME TAXES

NOTE 10 – INCOME TAXES

Income Tax Expense Reconciliations

The Company’s income tax amounts for the six months ended July 31, 2023 and 2022 differed from corresponding amounts computed by applying the federal corporate income tax rate of 21% to the income before income taxes for the periods as presented below:

	Six Months Ended July 31,
	2023		2022
Computed expected income tax expense	$	4,276	$	4,970
Difference resulting from:
State income taxes, net of federal tax effect		455		349
Unrecognized tax loss benefit		529		—
GILTI		505		225
Excess executive compensation		400		445
Foreign tax rate differential		(643)		(120)
Tax credits		(453)		(124)
Research and development credits adjustment		—		6,181
Other permanent differences and adjustments, net		418		33
Income tax expense	$	5,487	$	11,959

Foreign income tax expense for the six months ended July 31, 2023 was $1.5 million. Foreign income tax expense for the six months ended July 31, 2022 was not material.      

Net Operating Loss (“NOL”) Carryback

In an effort to combat the adverse economic impacts of the COVID-19 crisis, the U.S. Congress passed the Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”) that was signed into law on March 27, 2020. This wide-ranging legislation was an emergency economic stimulus package that included spending and tax breaks aimed at strengthening the U.S. economy and funding a nationwide effort to curtail the effects of the outbreak of COVID-19.

The tax changes of the CARES Act included a temporary suspension of the limitations on the future utilization of certain NOLs and re-established a carryback period for certain losses to five years. The NOLs eligible for carryback under the CARES Act include the Company’s domestic NOL for the year ended January 31, 2020, which was approximately $39.5 million. The Company made the appropriate filing with the Internal Revenue Service (the “IRS”) requesting carryback refunds of income taxes paid for the years ended January 31, 2016 (“Fiscal 2016”) and 2015 (“Fiscal 2015”) in the total amount of approximately $12.7 million during the fiscal year ended January 31, 2021 (“Fiscal 2021”). At the instruction of the IRS, amended income tax returns for Fiscal 2016 and Fiscal 2015 were filed during the second quarter of the current fiscal year; the IRS has not completed the review and approval of the Company’s amended tax returns and refund request.

Research and Development Tax Credits

During Fiscal 2022, the Company completed a detailed review of the activities of its engineering staff on major EPC services projects in order to identify and quantify the amounts of research tax credits that may have been available to reduce federal income taxes for Fiscal 2022 and Fiscal 2021. As a result, the Company filed amended federal income tax returns for those years including research and development tax credits in the total amount of $5.8 million, which was netted with a provision for uncertain tax return positions in the amount of $2.4 million, and recorded as a reduction of income tax expense in the fourth quarter of Fiscal 2023.  

Income Tax Refunds

As of July 31, 2023 and January 31, 2023, the balances of other current assets in the condensed consolidated balance sheet included income tax refunds receivable and prepaid income taxes in the total amounts of approximately $16.9 million and $15.3 million, respectively. The income tax refunds included the amount expected to be received from the IRS upon its review and approval of the Company’s NOL carryback refund request as described above.

Income Tax Returns

The Company is subject to federal and state income taxes in the U.S., and income taxes in Ireland and the U.K. Tax treatments within each jurisdiction are subject to the interpretation of the related tax laws and regulations which require significant judgments to apply. The Company is no longer subject to income tax examinations by authorities for its fiscal years ended on or before January 31, 2019, except for several notable exceptions including Ireland, the U.K. and several states where the open periods are one year longer. In May 2023, the Company received notification that its amended federal income tax returns for Fiscal 2021 and Fiscal 2022 were selected for examination.

Solar Energy Projects

The Company has invested in limited liability companies that make equity investments in solar energy projects that are eligible to receive energy tax credits. The passive investments have been accounted for using the equity method; the balances are included in other assets in our condensed consolidated balance sheets. Each tax credit, when recognized, is recorded as a reduction of the corresponding investment balance with an offsetting reduction in the balance of accrued taxes payable in accordance with the deferral method. As of July 31, 2023, the Company had no remaining cash investment commitments related to these projects. At July 31, 2023 and January 31, 2023, the investment account balances were $1.1 million and $1.2 million, respectively. These investments are expected to provide positive overall returns over their six-year expected lives.

During the three and six months ended July 31, 2023, the investment balance was adjusted to reflect the Company’s share of the losses of the investment entities in the amounts of less than $0.1 million and $0.1 million, respectively. For the three and six months ended July 31, 2022, the investment balance was adjusted to reflect the Company’s share of the income of the investment entities in the amounts of approximately $0.5 million and $1.0 million, respectively. These net amounts have been included as other loss or income in the Company’s condensed consolidated statement of earnings for the corresponding periods.

Supplemental Cash Flow Information

The amounts of cash paid for income taxes during the six months ended July 31, 2023 and 2022 were $3.7 million and $1.3 million, respectively. During the six months ended July 31, 2023 and 2022, the Company did not receive any income tax refunds that were material.