F. Income Taxes

During fiscal

2019,

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

$6,000.

During fiscal

2018,

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

$4.4

million.

The following is a geographical breakdown of income before income taxes (in thousands):

	2019		2018

United States	$	927	$	4,611
Foreign		7,026		6,002
Total income before income taxes	$	7,953	$	10,613

The provision for income taxes for the years ended

June

consisted of the following (in thousands):

	201 9			2018
Current:
Federal	$	12		$	2,141
State		16			52
Foreign		1,172			976
		1,200			3,169
Deferred:
Federal		6			2,024
State		(28	)		134
Foreign		234			235
		212			2,393
Total provision for income taxes	$	1,412		$	5,562

Net deferred tax assets and deferred tax liabilities as of

June

were as follows (in thousands):

	201 9			2018
Deferred tax assets:
Inventory capitalization	$	507		$	267
Inventory reserves		273			29
Pension liability		159			121
Net operating loss carry forward		220			240
Deferred rent		130			129
Stock-based compensation		174			155
Tax credit carry forward		260			230
Accrued vacation expense		—			70
Other, net		93			84
Total gross deferred tax assets		1,816			1,325

Deferred tax liabilities:
Prepaid expenses		(73	)		(101	)
Withholding taxes		(1,133	)		(1,133	)
Fixed Assets		(905	)		(388	)
Foreign inventory reserves		(469	)		(235	)
Forward Contracts		(229	)		—
Other, net		(25	)
Deferred tax liabilities		(2,834	)		(1,857	)
Net deferred tax liabilities	$	(1,018	)	$	(532	)

June

30,

2019,

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,

2019

and

June

30,

2018.

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

June 30, 2016

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

June 30, 2007

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

June

30,

2018

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

20.0%.

As part of the Tax Act, we were required to recognize a

one

-time deemed repatriation transition tax during the fiscal year ended

June 30, 2018

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 Tax Act we recorded a

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 Tax Act, we elected to pay this tax over an

eight

-year period. As of

June 30. 2019,

$1.3

million of the transition tax liability remains outstanding. 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 Tax Act, which was also treated as a discrete expense during the year ended

June 30, 2018.

We consider earnings accumulated subsequent to

December 31, 2017

as indefinitely reinvested.

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

21%

for fiscal

2019

and

28.06%

for fiscal

2018

to net income before income taxes for the year ended

June

is as follows (dollars in thousands):

	2019			2018
Income taxes computed at statutory federal income tax rate	$	1,670		$	2,969
State income taxes, net of federal income tax expense		(6	)		131
Permanent Differences		(182	)		(90	)
Foreign tax rate differential		(70	)		(473	)
Tax Act		—			3,025
Income tax provision as reported	$	1,412		$	5,562
Effective tax rate		17.8	%		52.4	%

The effective tax rate for the year ended

June 30, 2019

was

17.8%.

The effective tax rate for the year ended

June 30, 2019

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

21%

due to permanent differences, which primarily includes research and development tax credits. In comparison, the effective tax rate for the year ended

June 30, 2018

was

52.4%.

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 Tax 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 going forward.