Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(7) Income Taxes

For the years ended December 31, 2021, 2020, and 2019, income before income taxes consists of the following:

	2021		2020		2019
	(In thousands)
U.S. Operations	$	48,145	$	41,357	$	40,045
Foreign Operations		476		110		474
Income before income taxes	$	48,621	$	41,467	$	40,519

Income tax expense consisted of the following components:

	2021			2020			2019
	(In thousands)
Federal:
Current	$	9,092		$	3,546		$	5,574
Deferred		(224	)		(308	)		718
Total	$	8,868		$	3,238		$	6,292
Foreign:
Current	$	143		$	225		$	94
Deferred		(17	)		(6	)		33
Total	$	126		$	219		$	127
State:
Current	$	2,197		$	578		$	1,322
Deferred		(36	)		172			372
Total	$	2,161		$	750		$	1,694
Total	$	11,155		$	4,207		$	8,113

As a result of the Tax Cut and Jobs Act (the “Tax Act”), we determined that we would no longer indefinitely reinvest the earnings of our Canadian subsidiary. Our Canadian subsidiary declared a deemed dividend to the Company for $9.6 million in 2020. Additionally, a withholding tax of 5% was paid for the dividend distribution.

We received notice in December 2019, that we met qualification requirements for the Nebraska Advantage LB312 Act (“NAA”) related to certain investment and full-time equivalent employee thresholds in the year ended 2017. NAA provides direct refunds of sales tax on qualified property, as well as investment credits and employment credits that can be claimed through credits of Nebraska income tax, employment tax, and sales tax on non-qualified property. We expect to receive direct refunds of Nebraska sales tax on qualified property incurred from 2014 to 2023. Investment credits started to accumulate in 2014 and can be earned through 2023. These credits can be claimed against Nebraska income taxes or through sales tax on non-qualified property through 2028. The employment credits are earned from 2017 through 2023, and they can be claimed against Nebraska payroll taxes through 2028. In 2019, we recorded cumulative adjustments for direct refunds and credits earned through the year ending December 31, 2019, which reduced operating expenses by approximately $1.9 million. For the year ended December 31, 2021 and 2020, adjustments for credits reduced operating expenses by approximately $473,000 and $435,000, respectively. In addition, income tax credits of $10,000, $45,000 and $24,000 were recorded as a reduction to income tax expense for the years ended December 31, 2021, 2020 and 2019, respectively.

The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 percent and the reported income tax (benefit) expense are summarized as follows:

	2021			2020			2019
	(In thousands)
Expected federal income taxes	$	10,210		$	8,708		$	8,509
Foreign tax rate differential		26			6			26
State income taxes, net of federal benefit and state tax credits		1,531			607			1,344
Share-based compensation		(660	)		(5,713	)		(1,579	)
Compensation limit for covered employees		--			463			--
Federal tax credits		(272	)		(261	)		(419	)
Uncertain tax positions		254			157			34
Nondeductible expenses (income) related to recapitalization		--			--			(24	)
Goodwill Impairment		--			184			--
Withholding tax on repatriation of foreign earnings		8			18			107
GILTI		--			10			13
Other		58			28			102
	$	11,155		$	4,207		$	8,113

Deferred tax assets and liabilities at December 31, 2021 and 2020, were comprised of the following:

	2021			2020
	(In thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	24		$	29
Accrued expenses		687			696
Share-based compensation		740			735
Accrued bonuses		267			145
Employer payroll tax deferral		200			323
Uncertain tax positions		161			104
Other		66			11
Gross deferred tax assets		2,145			2,043
Less valuation allowance		--			--
Deferred tax assets		2,145			2,043
Deferred tax liabilities:
Prepaid expenses		89			93
Deferred contract costs		945			1,111
Property and equipment		1,579			1,725
Intangible assets		6,338			6,109
Repatriation withholding		182			174
Other		--			96
Deferred tax liabilities		9,133			9,308
Net deferred tax liabilities	$	(6,988	)	$	(7,265	)

In March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, contains numerous income tax provisions. As a result of the CARES Act, we had deferred $1.3 million of employer social security tax payments as of December 31, 2020. In accordance with the CARES Act, we paid half of this liability in December 2021, and we expect to pay the remaining $656,000 in December 2022. We have had no other impacts to our consolidated financial statements or related disclosures from the CARES Act.

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider projected future taxable income, carry-back opportunities, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences excluding the foreign tax credit carryforward. In 2020, we wrote off the deferred tax asset for prior year foreign tax credit carryforwards of $535,000 and the related valuation allowance. We made the assessment that due to our Canadian subsidiary’s decreased projected future income and the lower US tax rate compared to the Canadian tax rate, it was unlikely we would realize this asset.

We had an unrecognized tax benefit at December 31, 2021 and 2020, of $1.1 million and $768,000, respectively, excluding interest of $19,000 and $15,000 at December 31, 2021 and 2020, respectively. Of these amounts, $918,000 and $668,000 at December 31, 2021 and 2020, respectively, represents the net unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate. The change in the unrecognized tax benefits for 2021 and 2020 was as follows:

	(In thousands)
Balance of unrecognized tax benefits at December 31, 2019	$	592
Reductions due to lapse of applicable statute of limitations		(34	)
Reductions due to tax positions of prior years		4
Reductions due to settlement with taxing authorities		--
Additions based on tax positions related to the current year		206
Balance of unrecognized tax benefits at December 31, 2020	$	768
Reductions due to lapse of applicable statute of limitations		(38	)
Additions due to tax positions of prior years		--
Reductions due to settlement with taxing authorities		--
Additions based on tax positions related to the current year		345
Balance of unrecognized tax benefits at December 31, 2021	$	1,075

We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and Canada federal and provincial jurisdictions. Tax years 2018 and forward remain subject to U.S. federal examination. Tax years 2015 and forward remain subject to state examination. Tax years 2017 and forward remain subject to Canadian federal and provincial examination.