Note G - Income Taxes

12 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

G. Income Taxes

During fiscal 2022, we recorded U.S.-based domestic tax expense of $2.0 million. During fiscal 2021, we recorded U.S.-based domestic tax expense of $0.6 million.

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

	2022		2021
United States	$	9,152	$	7,462
Foreign		4,507		4,663
Total income before income taxes	$	13,659	$	12,125

The provision for income taxes for the years ended June 30 consisted of the following (in thousands):

	2022			2021
Current:
Federal	$	1,297		$	274
State		(1	)		59
Foreign		900			1,238
		2,196			1,571
Deferred:
Federal		501			44
State		250			211
Foreign		—			(469	)
		751			(214	)
Total provision for income taxes	$	2,947		$	1,357

Net deferred tax assets and deferred tax liabilities as of June 30 were as follows (in thousands):

	2022			2021
Deferred tax assets:
Inventory capitalization	$	373		$	259
Inventory reserves		113			143
Pension liability		—			150
Lease liability		2,139			2,477
Net operating loss carry forward		242			94
Accrued compensation		458			568
Stock-based compensation		66			96
Forward contracts		—			8
Tax credit carry forward		43			300
Allowance for bad debt		795			863
Other, net		—			3
Total gross deferred tax assets		4,229			4,961
Deferred tax liabilities:
Withholding taxes		(1,133	)		(1,133	)
Fixed assets		(1,523	)		(997	)
Forward contracts		(541	)		—
Lease asset		(2,073	)		(2,413	)
Other, net		(179	)		(204	)
Deferred tax liabilities		(5,449	)		(4,747	)
Net deferred tax (liabilities) assets	$	(1,220	)	$	214

At June 30, 2022, we had state tax net operating loss carry forwards of approximately $3.4 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. California Senate Bill 113, effective February 9, 2022 reinstates net operating loss deductions in tax years beginning in 2022. 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, 2022 and June 30, 2021.

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, 2018 and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended June 30, 2021 and forward are subject to examination by the Swiss tax authorities.

NAIE’s effective tax rate for the fiscal year ending June 30, 2022 for Swiss federal, cantonal and communal taxes is approximately 20%.

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 2022 and for fiscal 2021 to net income before income taxes for the year ended June 30 is as follows (dollars in thousands):

	2022			2021
Income taxes computed at statutory federal income tax rate	$	2,868		$	2,546
State income taxes, net of federal income tax expense		174			189
Permanent Differences		85			(6	)
Foreign tax rate differential		(47	)		(210	)
Tax credits		(124	)		(60	)
FDII export sales incentive		(46	)		(137	)
Stock based compensation		37			(231	)
Global intangible low-taxed income (GILTI)		—			28
GILTI final regulations planning		—			(436	)
CARES Act rate differential		—			(326	)
Income tax provision as reported	$	2,947		$	1,357
Effective tax rate		21.6	%		11.3	%

We expect our U.S. federal statutory rate to be 21% for fiscal years going forward.