Note 12 - Income Taxes

12 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 12 — INCOME TAXES

The following information is provided for the years ended June 30:

(In thousands)	2021			2020
Components of income before income taxes:
United States	$	7,117		$	11,494
Foreign		799			199
Income before income taxes	$	7,916		$	11,693
Provision for income taxes
U.S. Federal	$	2,425		$	(2,082	)
Foreign		247			83
State and local		434			175
Total current		3,106			(1,824	)
Deferred		(1,058	)		3,925
Total provision for income taxes	$	2,048		$	2,101

(In thousands)	2021			2020
Reconciliation to federal statutory rate:
Federal statutory rate		21.0	%		21.0	%
State and local taxes, net of federal benefit		1.5			2.0
Foreign operations		1.0			0.4
Federal tax credits		(1.5	)		(0.7	)
Valuation allowance		(25.9	)		(13.4	)
New York state tax credits		25.9			-
Expiration of capital loss carryforward		-			8.9
Transaction costs		3.5			-
Uncertain tax position activity		(0.1	)		(0.5	)
Stock-based compensation		1.0			3.6
Tax rate changes		(0.3	)		(5.4	)
Other		(0.2	)		2.1
Effective tax rate		25.9	%		18.0	%

The favorable tax rate change for the year ended June 30, 2020 is due to the enactment of the CARES Act. The CARES Act allows the Company to carryback a federal net operating loss to prior tax years, offset taxable income in those earlier tax years, and obtain a refund of income taxes that were paid at a higher statutory tax rate. 

The components of deferred income tax assets and (liabilities) at June 30, 2021 and 2020 are as follows:

(In thousands)	2021			2020
Uncertain tax positions	$	138		$	125
Reserves against current assets		936			798
Accrued expenses		3,348			2,196
Interest		927			-
Deferred compensation		514			235
Stock-based compensation		841			597
State net operating loss carryover and credits		624			2,194
Lease liability		4,408			1,992
Goodwill, acquisition costs and intangible assets		-			8,040
U.S. Federal net operating loss carryover and credits		1,587			217
Deferred income tax asset before valuation allowance		13,323			16,394
Valuation allowance		(108	)		(2,194	)
Deferred income tax asset		13,215			14,200
Depreciation		(2,677	)		(1,837	)
Right of use assets		(4,299	)		(1,992	)
Goodwill, acquisition costs and intangible assets		(3,683	)		-
Deferred income tax liability		(10,659	)		(3,829	)
Net deferred income tax asset	$	2,556		$	10,371

The Company has U.S. federal net operating loss carry forward deferred tax assets of $1.5 million and $0.1 million at June 30, 2021 and June 30, 2020, respectively. The increase of $1.4 million for the year is from the acquisition of JSI and has an unlimited carryforward period.  The remaining $0.1 million will expire over a three-year period beginning June 30, 2029. The Company has deferred tax assets for research and development credits of $0.1 million at both June 30, 2021 and June 30, 2020.  Utilization of the federal net operating losses and research and development credits are limited by Internal Revenue Code Section 382, but are expected to be realized before expiration.

The Company has state net operating loss carryovers and tax credit deferred tax assets of $0.6 million and $2.2 million at June 30, 2021 and June 30, 2020, respectively. At June 30, 2021, there was $0.3 million of state net operating losses from the acquisition of JSI and $0.3 million other state net operating losses and tax credits. A valuation allowance of $0.1 million exists at June 30, 2021 against Oregon tax credits not expected to be used.  The Oregon credits are otherwise expected to expire over a 4-year period beginning June 30, 2027.

At June 30, 2020, there was $2.1 million of New York tax credits and $0.1 million of Oregon tax credits. A full valuation allowance existed for both credits not expected to be used of $2.2 million. During fiscal year 2021, the Company eliminated the deferred tax asset and related valuation allowance for the New York tax credits of $2.1 million when the entity holding the New York credits was dissolved. There was no impact to the consolidated financial statements.

The Company had a capital loss carry forward of $10.7 million at June 30, 2019 that was generated from the sale of a Canadian subsidiary during fiscal 2015. During fiscal 2020, the Company sold its North Canton, Ohio and New Windsor, New York facilities, resulting in taxable capital gain; $6.4 million of the capital loss carry forward was used to offset the gain. The remaining capital loss carryforward of $4.3 million expired unused in fiscal 2020. The Company recognized the tax benefit of utilizing the capital loss of $0.6 million in the fiscal year 2020 by releasing the related valuation allowance.

At June 30, 2021, tax, interest, and penalties, net of potential federal tax benefits, were $0.7 million, $0.3 million and $0.2 million, respectively, of the total reserve for uncertain tax positions of $1.2 million. The entire uncertain tax position of $0.7 million net of federal tax benefit, would impact the effective tax rate if recognized.

At June 30, 2020, tax, interest, and penalties, net of potential federal tax benefits, were $0.5 million, $0.3 million, and $0.1 million, respectively, of the total reserve for uncertain tax positions of $0.9 million. The entire uncertain tax position of $0.5 million, net of federal tax benefit, would impact the effective tax rate if recognized. The liability for uncertain tax position is included in Other Long-Term Liabilities.

The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Consolidated Statements of Operations. The Company recognized a $0.1 million net tax benefit in both fiscal 2021 and fiscal 2020, related to the change in reserves for uncertain tax positions. The Company recognized interest net of federal benefit and penalties of $32,000 and $19,000, respectively, in fiscal 2021 and $0 and $13,000, respectively, in fiscal 2020. The reserve for uncertain tax positions is not expected to change significantly in the next twelve months.

The tax activity in the liability for uncertain tax positions was as follows:

(In thousands)	2021			2020
Balance at the beginning of the fiscal year	$	607		$	675
Decreases - tax positions in prior period		(52	)		(70	)
Increase - tax positions in current period		49			15
Increases - tax positions in prior period		78			-
Settlements and payments		-			(13	)
Balance at end of the fiscal year	$	682		$	607

The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax returns in several state and local jurisdictions, and also in Canada and Mexico. With limited exceptions, the Company is no longer subject to U.S. Federal, state and local tax examinations by tax authorities for fiscal years ending prior to June 30, 2018.