Income Taxes

12 Months Ended

Jun. 30, 2023

Income Taxes

Income Taxes

NOTE 7 - Income Taxes

The provision for income taxes is comprised of the following (in thousands):

	For the Year ended June 30,
	2023		2022		2021
Current income taxes:
Federal	$	5,899	$	2,161	$	1,912
State		1,020		300		265
		6,919		2,461		2,177
Deferred income taxes:
Federal		(2,334)		(214)		337
State		(484)		—		—
		(2,818)		(214)		337
Provision for income taxes	$	4,101	$	2,247	$	2,514

A reconciliation of the U.S. Federal statutory income tax rate to our actual effective tax rate on earnings before income taxes is as follows for the years ended June 30, (dollars in thousands):

	2023				2022				2021
			% of				% of				% of
			Pre-tax				Pre-tax				Pre-tax
	Amount		Income		Amount		Income		Amount		Income
Tax at Federal statutory rate	$	6,558	21.0	%	$	4,588	21.0	%	$	3,765	21.0	%
Increases (decreases) in taxes resulting from:
Meals and entertainment		48	0.2	%		29	0.1	%		29	0.2	%
State income taxes, net of Federal income tax benefit		436	1.4	%		238	1.1	%		135	0.8	%
Global intangible low-taxed income		2,739	8.8	%		1,697	7.8	%		1,706	9.5	%
R&D Credit		(661)	(2.1)	%		(554)	(2.5)	%		(523)	(2.9)	%
Foreign withholding tax		—	—	%		—	—	%		205	1	%
Foreign Source income not subject to Tax		(5,524)	(17.7)	%		(3,231)	(14.8)	%		(3,353)	(19)	%
Non-taxable debt extinguishment		—	—	%		(820)	(3.8)	%		—	—	%
Uncertain Tax Positions		63	0.2	%		20	0.1	%		312	1.7	%
IRS examination settlements		—	—	%		—	—	%		—	—	%
Other, net		442	1.4	%		280	1.3	%		238	1.3	%
Effective tax rate	$	4,101	13.1	%	$	2,247	10.3	%	$	2,514	14.0	%

Deferred tax assets and deferred tax liabilities at June 30, 2023 and 2022 are as follows (in thousands):

	Deferred Tax Assets (Liabilities)
	2023		2022
Accounts receivable	$	22	$	42
Inventories		397		413
Accrued liabilities		857		454
Stock based compensation expense		250		179
Revenue reserves		333		466
Unrealized loss (gain) on marketable securities		124		90
Capitalized research and development cost		2,923		—
Other		4		—
Total Deferred Tax Assets	$	4,910	$	1,644
Valuation allowance		—		—
Deferred income tax assets, net of valuation allowance	$	4,910	$	1,644
Intangibles		(916)		(615)
Property, plant and equipment		(729)		(582)
Other deferred tax liabilities		(613)		(613)
Total Deferred Tax Liability	$	(2,258)	$	(1,810)
Net Deferred Tax Asset/(Liability)	$	2,652	$	(166)

The Company has identified the United States and New York State as its major tax jurisdictions. Fiscal year 2018 and forward years are still open for examination. In addition, the Company has a wholly-owned subsidiary which operates in a Free Zone in the Dominican Republic (“DR”) and is exempt from DR income tax.

The Company was audited by the IRS for the fiscal year 2017. The Company received Form 4549-A, Income Tax Examination Changes from the IRS proposing an adjustment to income for the fiscal 2017 tax year regarding deemed dividends based on its interpretation under IRC Section 956 arising from the intercompany balances on the books of the Company. During the third quarter of fiscal 2021, the Company settled the issue and paid the IRS $399,000. The Company reported the results of the IRS exam to all the jurisdictions in which it files and paid taxes and interest totaling $97,000. Subsequent to the quarter end, the Company paid the IRS $68,000 for interest. None of the payments were recorded to expense in 2021, since liabilities had previously been established.

In December 2022, the Company received a letter from the IRS (“IRS”) notifying it that the IRS has closed its examination of the Company’s income tax return for fiscal year ended June 30, 2020. There have been no changes proposed in relation to this examination.

The provision for income taxes represents Federal, foreign, and state and local income taxes. The effective rate differs from statutory rates due to the effect of tax rates in foreign jurisdictions, state and local income taxes, tax benefit of R&D credits, certain nondeductible expenses, uncertain tax positions and global intangible low-taxed income ("GILTI").

During the year ending June 30, 2023, the Company increased its reserve for uncertain income tax positions by $22,000. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes. As of June 30, 2023, the Company had accrued interest totaling $139,000, penalties totaling $5,000, and $700,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period. The Company does not expect that its unrecognized tax benefits will significantly change within the next twelve months. The Company claims R&D tax credits on eligible research and development expenditures. The R&D tax credits are recognized as a reduction to income tax expense.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2023		2022		2021
Balance of gross unrecognized tax benefits as of Beginning of Year	$	678	$	678	$	866
Increase (Decrease) to unrecognized tax benefits from deemed dividends for investments in US property		—		—		(3)
Increase (Decrease) to unrecognized tax benefits resulting from the release of R&D credits due to the settled IRS audit		—		—		(185)
Increase (Decrease) to unrecognized tax benefits resulting from a state filing tax position		22		—		—
Balance of gross unrecognized tax benefits as of End of Year	$	700	$	678	$	678