Note 6 - Income Taxes

12 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

6. Income Taxes

Provision for income taxes consists of the following (in thousands):

	Years Ended September 30,
	2021			2020
Current income tax expense U.S.	$	—		$	—
Current income tax expense foreign		20			97
Deferred income tax expense (benefit)		(5	)		51
Provision for income taxes	$	15		$	148

Sonic Foundry, Inc.

Annual Report on Form 10-K

For the Year Ended September 30, 2021

U.S. and foreign components of income (loss) before income taxes were as follows (in thousands):

	Years Ended September 30,
	2021		2020
U.S.	$	2,702	$	(184	)
Foreign		390		153
Income (Loss) before income taxes	$	3,092	$	(31	)

The reconciliation of income tax expense (benefit) computed at the appropriate country specific rate to income tax benefit is as follows (in thousands):

	Years Ended September 30,
	2021			2020
Income tax expense (benefit) at statutory rate	$	649		$	(39	)
State income tax expense		9			148
Foreign rate differential		(31	)		—
Foreign tax activity		—			97
PPP loan forgiveness		(488	)		—
Permanent differences, net		67			538
Expiration of net operating losses		3,945			3,666
Change in valuation allowance		(4,255	)		(4,298	)
Return to provision true-up		166			—
Other		(47	)		36
Income tax expense	$	15		$	148

The significant components of the deferred tax accounts recognized for financial reporting purposes are as follows (in thousands):

	September 30,
	2021			2020
Deferred tax assets:
Net operating loss and other carryforwards	$	16,893		$	20,069
Common stock options		1,003			958
Unearned revenue		343			446
Interest expense limitation		10			457
Other		335			433
Total deferred tax assets		18,584			22,363
Deferred tax liabilities:
Other		(321	)		(339	)
Total deferred tax liabilities		(321	)		(339	)
Net deferred tax asset		18,263			22,024
Valuation allowance		(18,215	)		(21,981	)
Net deferred tax asset	$	48		$	43

The Company has a $48 thousand and $43 thousand deferred tax asset at September 30, 2021 and 2020, respectively, recorded within other long-term assets lines on the consolidated balance sheet and is primarily related to net operating losses of MSKK.

At September 30, 2021, the Company had net operating loss carryforwards of approximately $61 million for U.S. Federal and $64 million for state tax purposes. For Federal tax purposes, the carryforwards have a range of lives from 20 years to indefinite and begin expiring in 2021. For state tax purposes, the carryforwards expire in varying amounts between 2021 and 2041. Utilization of the Company’s net operating loss may be subject to substantial annual expirations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Approximately $18.8 million of the net operating loss carryforwards expired during the year ended September 30, 2021.

Sonic Foundry, Inc.

Annual Report on Form 10-K

For the Year Ended September 30, 2021

The Company maintains an additional paid-in-capital (APIC) pool which represents the excess tax benefits related to share-based compensation that are available to absorb future tax deficiencies. If the amount of future tax deficiencies is greater than the available APIC pool, the Company records the excess as income tax expense in its consolidated statements of income. For fiscal 2021 and fiscal 2020, the Company had a sufficient APIC pool to cover any tax deficiencies recorded and as a result, these deficiencies did not affect its results of operations. At September 30, 2021, the Company has $1.1 million of net operating loss carry forwards for which a benefit would be recorded in APIC when realized.

Earnings of the Company’s foreign subsidiaries are generally subject to U.S. taxation upon repatriation to the U.S. and the Company’s tax provision reflects the related incremental U.S. tax except for certain foreign subsidiaries whose unremitted earnings are considered to be indefinitely reinvested. No deferred tax liability has been recognized with regard to the remittance of such earnings after MSKK and Sonic Foundry International BV acquisitions were completed. At September 30, 2021, unremitted earnings of $1.6 million for foreign subsidiaries were deemed to be indefinitely reinvested.

In accordance with accounting guidance for uncertainty in income taxes, the Company has concluded that a reserve for income tax contingencies is not necessary. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accruals for interest and penalties on the Company’s Consolidated Balance Sheets at September 30, 2021 or September 30, 2020 and has not recognized any interest or penalties in the Consolidated Statements of Operations for either of the years ended September 30, 2021 or 2020.

The Company is subject to taxation in the U.S., Netherlands, Japan and various state jurisdictions. All of the Company’s tax years are subject to examination by the U.S., Dutch, Japanese and state tax authorities due to the carryforward of unutilized net operating losses.