Note G - Income Taxes

12 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

G. Income Taxes

During fiscal

2021,

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

$0.6

million. During fiscal

2020,

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

$0.8

million.

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

	2021		2020
United States	$	7,462	$	(5,742	)
Foreign		4,663		4,004
Total income (loss) before income taxes	$	12,125	$	(1,738	)

The provision for income taxes for the years ended

June 

30

consisted of the following (in thousands):

	2021			2020
Current:
Federal	$	274		$	31
State		59			4
Foreign		1,238			728
		1,571			763
Deferred:
Federal		44			(641	)
State		211			(215	)
Foreign		(469	)		—
		(214	)		(856	)
Total provision (benefit) for income taxes	$	1,357		$	(93	)

Net deferred tax assets and deferred tax liabilities as of

June 

30

were as follows (in thousands):

	2021			2020
Deferred tax assets:
Inventory capitalization	$	259		$	412
Inventory reserves		143			301
Pension liability		150			260
Lease liability		2,477			2,732
Net operating loss carry forward		94			245
Accrued compensation		568			—
Stock-based compensation		96			157
Forward contracts		8			93
Tax credit carry forward		300			340
Allowance for bad debt		863			819
Other, net		3			246
Total gross deferred tax assets		4,961			5,605
Deferred tax liabilities:
Withholding taxes		(1,133	)		(1,133	)
Fixed Assets		(997	)		(1,011	)
Foreign inventory reserves		—			(469	)
Lease asset		(2,413	)		(2,681	)
Other, net		(204	)		(115	)
Deferred tax liabilities		(4,747	)		(5,409	)
Net deferred tax assets	$	214		$	196

At

June 

30,

2021,

we had state tax net operating loss carry forwards of approximately

$1.3

million. Under California Assembly Bill

85,

effective

June 29, 2020,

net operating loss deductions were suspended for tax years beginning in

2019,

2020,

and

2021

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

2029,

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,

2021

and

June 

30,

2020.

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. Our tax years for the fiscal years ended

June 30, 2017

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

June 30, 2020

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

NAIE's effective tax rate for the fiscal year ending

June 30, 2021

for Swiss federal, cantonal and communal taxes is approximately

16.5%.

Excluding the discrete tax item recorded as part of the GILTI final regulations, NAIE's effective tax rate for the year ending

June 30, 2021

is

18.9%.

As part of the Tax Cuts and Jobs Act of

2017

(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. We

no

longer consider undistributed foreign earnings from NAIE as of

December 31, 2017

as indefinitely reinvested. 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

2021

and for fiscal

2020

to net income before income taxes for the year ended

June 

30

is as follows (dollars in thousands):

	2021			2020
Income taxes computed at statutory federal income tax rate	$	2,546		$	(364	)
State income taxes, net of federal income tax expense		189			(174	)
Permanent Differences		(6	)		155
Foreign tax rate differential		(210	)		(112	)
Tax credits		(60	)		—
FDII export sales incentive		(137	)		—
Stock based compensation		(231	)		—
Global intangible low-taxed income (GILTI)		28			402
GILTI final regulations planning		(436	)		—
CARES Act rate differential		(326	)		—
Income tax provision as reported	$	1,357		$	(93	)
Effective tax rate		11.3	%		5.4	%

The effective tax rate for the year ended

June 30, 2021

was

11.3%.

The effective tax rate for the year ended

June 30, 2021

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

21%

due primarily to the global intangible low-taxed income (GILTI) enacted as part of the Tax Act, and permanent differences, which primarily include discrete tax items related to stock option exercises and employee stock vesting. In comparison, the effective tax rate for the year ended

June 30, 2020

was

5.4%.

The effective tax rate for the year ended

June 30, 2020

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

21%

due primarily to the global intangible low-taxed income (GILTI) enacted as part of the Tax Act, and permanent differences, which primarily include discrete tax items related to employee stock vesting. We expect our U.S. federal statutory rate to be

21%

for fiscal years going forward.