. Income Taxes

During fiscal

2018,

we recorded U.S.-based domestic tax expense of

$4.4

million. During fiscal

2017,

we recorded U.S.-based domestic tax expense of

$2.2

million.

The provision for income taxes for the years ended

June

consisted of the following (in thousands):

	201 8		201 7
Current:
Federal	$	2,141	$	1,791
State		52		90
Foreign		976		646
		3,169		2,527
Deferred:
Federal		2,024		305
State		134		44
Foreign		235		—
		2,393		349
Total provision for income taxes	$	5,562	$	2,876

Net deferred tax assets and deferred tax liabilities as of

June

were as follows (in thousands):

	201 8			201 7
Deferred tax assets:
Inventory capitalization	$	267		$	438
Inventory reserves		29			178
Pension liability		121			241
Accrued bonus		—			114
Net operating loss carry forward		240			240
Deferred rent		129			193
Accumulated depreciation and amortization		—			8
Stock-based compensation		155			195
Tax credit carry forward		230			176
Accrued vacation expense		70			111
Other, net		84			256
Total gross deferred tax assets		1,325			2,150

Deferred tax liabilities:
Prepaid expenses		(101	)		(148	)
Withholding taxes		(1,133	)		—
Fixed Assets		(388	)		—
Foreign inventory reserves		(235	)		—
Deferred tax liabilities		(1,857	)		(148	)
Valuation allowance		—			—
Net deferred tax (liabilities) assets	$	(532	)	$	2,002

As of

June 30, 2018,

we remeasured certain deferred tax assets and liabilities based on the newly enacted

21%

tax rate. The amount we recorded from remeasuring our deferred tax balance was

$212,000

and was treated as a discrete expense for the year ended

June 30, 2018.

June

30,

2018,

we had state tax net operating loss carry forwards of approximately

$3.4

million. Under California tax law, net operating loss deductions were suspended for tax years beginning in

2008,

2009,

2010

and

2011

and the carry forward periods of any net operating losses

not

utilized due to such suspension were extended. Our state tax loss carry forwards will begin to expire in fiscal

2032,

unless used before their expiration.

Pursuant to Section

382

of the Internal Revenue Code of

1986,

as amended (the “Code”), the annual use of the net operating loss carry forwards and research and development tax credits could be limited by any greater than

50%

ownership change during any

three

-year testing period. We did

not

have any ownership changes that met this criterion during the fiscal years ended

June

30,

2018

and

June

30,

2017.

We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended

June

30,

2015

and forward are subject to examination by the U.S. tax authorities and our years for the fiscal year ended

June 30, 2007

and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended

June

30,

2015

and forward are subject to examination by the Switzerland tax authorities.

NAIE’s effective tax rate for Swiss federal, cantonal and communal taxes is approximately

20.2%.

NAIE had pretax net income of

$6.0

million for the fiscal year ended

June

30,

2018.

A reconciliation of income tax provision computed by applying the statutory federal income tax rate of

28.06%

for fiscal

2018

and

34%

for fiscal

2017

to net income before income taxes for the year ended

June

is as follows (dollars in thousands):

	201 8			201 7
Income taxes computed at statutory federal income tax rate	$	2,969		$	3,438
State income taxes, net of federal income tax expense		131			95
Expenses not deductible for tax purposes		(90	)		29
Foreign tax rate differential		(473	)		(613	)
Tax Act		3,025			—
Other, net		—			(73	)
Income tax provision as reported	$	5,562		$	2,876
Effective tax rate		52.4	%		28.4	%

The effective tax rate for the year ended

June 30, 2018

was

52.4%.

In comparison, the effective tax rate for the year ended

June 30, 2017

was

28.4%.

The effective tax rate for the year ended

June 30, 2018

differs from the estimated U.S. federal statutory rate of

28.06%

primarily due to the impact of the Act’s required

one

-time transition tax and the reevaluation of our deferred taxes, offset by the favorable impact of foreign earnings taxed at less than the U.S. statutory rate. We expect our U.S. federal statutory rate to be

21%

for fiscal years beginning after

June 30, 2018.

As part of the Act, we are required to recognize a

one

-time deemed repatriation transition tax based on our total post-

1986

earnings and profits (E&P) from our Swiss subsidiary, NAIE. This accumulated E&P amount has historically been considered permanently reinvested thereby allowing us to defer recognizing any U.S. income tax on the amount. As a result of the Act we recorded a provisional amount for our

one

-time transition tax liability resulting in an increase in income tax expense during the year ended

June 30, 2018

$1.7

million, which was treated as a discrete expense. In accordance with the provisions of the Act, we will elect to pay this tax over an

eight

-year period. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. We

longer consider undistributed foreign earnings from NAIE as of

December 31, 2017

as indefinitely reinvested. As a result, we have recorded

$1.1

million in estimated foreign withholding taxes on the amounts deemed repatriated under the Act, which was also treated as a discrete expense during the period. We consider earnings accumulated subsequent to

December 31, 2017

as indefinitely reinvested.