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Income Taxes
12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
Income Taxes

7.  Income Taxes

 

The amounts of income tax expense (benefit) reflected in operations is as follows:

 

   2014  2013
 Current:           
 Federal   $1,063,043   $899,928 
     State    171,003    118,092 
     Foreign    572,660    539,162 
      1,806,706    1,557,182 
             
 Deferred:           
 Federal    184,616    (59,240)
     State    22,398    (6,596)
     Foreign    —      (360)
      207,014    (66,196)
     $2,013,720   $1,490,986 

 

The current state tax provision was comprised of taxes on income, the minimum capital tax and other franchise taxes related to the jurisdictions in which the Company's facilities are located.

 

A summary of United States and foreign income before income taxes follows:

 

   2014  2013
United States  $3,877,541   $2,306,909 
Foreign   2,925,184    3,186,982 
   $6,802,725   $5,493,891 

 

As discussed in Note 10 below, for segment reporting, Direct Import sales are included in the United States segment. However, the revenues are earned by our Hong Kong subsidiary and related income taxes are paid in Hong Kong whose rate approximates 16.5%. As such, income of the Asian subsidiary is included in the foreign income before taxes.

 

The following schedule reconciles the amounts of income taxes computed at the United States statutory rates to the actual amounts  reported in operations.

 

   2014  2013
          
          
Federal income taxes at 34% statutory rate  $2,203,901   $1,867,923 
State and local taxes, net of federal income tax effect   131,505    73,587 
Permanent items   11,693    61,750 
Foreign tax rate difference   (471,469)   (515,729)
Change in deferred income tax valuation allowance   138,090    3,455 
 Provision for income taxes  $2,013,720   $1,490,986 

 

 

The following summarizes deferred income tax assets and liabilities:

   2014  2013
Deferred income tax liabilities:      
Plant, property and equipment  $469,247   $450,705 
    469,247    450,705 
Deferred income tax assets:          
Asset valuations   608,905    508,686 
Contribution carryforward        110,700 
Operating loss carryforwards and credits   138,090    2,205,244 
Pension   166,625    178,908 
Foreign tax credit   28,049    43,575 
Other   734,993    885,185 
    1,676,662    3,932,298 
Net deferred income tax asset before valuation allowance   1,207,415    3,481,593 
Valuation allowance   (138,090)   (2,205,244)
Net deferred income tax asset  $1,069,325   $1,276,349 

  

In 2014, the Company evaluated its tax positions for years which remain subject to examination by major tax jurisdictions, in accordance with the requirements of ASC 740 and as a result concluded no adjustment was necessary. The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company’s evaluation of uncertain tax positions was performed for the tax years ended December 31, 2011 and forward, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2014.

In accordance with the Company’s accounting policies, any interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

 

The Company provides deferred income taxes on foreign subsidiary earnings, which are not considered permanently reinvested. Earnings permanently reinvested would become taxable upon the sale or liquidation of a foreign subsidiary or upon the remittance of dividends. During 2014, the Company repatriated a total of $11.8 million of foreign earnings, consisting of $10.5 million from its Hong Kong subsidiary and $1.3 million from its Canadian subsidiary. U.S. income taxes on those repatriated earnings have been partially offset by foreign tax credits. The Company plans to continue to repatriate future earnings of its Canadian subsidiary and will provide for U.S. income taxes accordingly. Foreign subsidiary earnings of $3,177,348 and $13,884,269 are considered permanently reinvested as of December 31, 2014 and 2013, respectively, and no deferred income taxes have been provided on these foreign earnings.

 

Due to the uncertain nature of the realization of the Company's deferred income tax assets based on past performance of its German subsidiary and carry forward expiration dates, the Company has recorded a valuation allowance for the amount of deferred income tax assets which are not expected to be realized. This valuation allowance, all of which is related to deferred tax assets resulting from net operating losses of the Company’s German subsidiary, is subject to periodic review, and if the allowance is reduced, the tax benefit will be recorded in future operations as a reduction of the Company's tax expense.