Note 11. Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

The provision for income taxes consisted of the following components for the years ended December 31 (in 000’s):

	2018			2017
Current:
Federal	$	499		$	116
State		145			13
Foreign		73			62
Total Current		717			191
Deferred:
Federal		(259	)		(59	)
State		(59	)		23
Foreign		(26	)		(24	)
Total Deferred		(344	)		(60	)
Total expense for income taxes	$	373		$	131

Reconciliation between the statutory rate and the effective tax rate is as follows at December 31 (in 000's, except percentages):

	2018						2017
	Amount			Percentage			Amount			Percentage
Federal statutory tax rate	$	254			21.0	%	$	681			34.0	%
State tax rate		55			4.6	%		21			1.0	%
Permanent difference – stock-based compensation		(2	)		(0.1	)%		(156	)		(7.8	)%
Permanent difference – other		4			0.1	%		63			3.1	%
Tax reform deferred re-measurement		—			—			(351	)		(17.5	)%
Provision to return		96			7.9	%		(3	)		(0.1	)%
Tax on foreign earnings – tax reform		41			3.5	%		—			—	%
Foreign rate differential		2			0.1	%		(41	)		(2.0	)%
Research and development credit		(77	)		(6.3	)%		(70	)		(3.5	)%
Sub-total		373			30.8	%		144			7.2	%
Change in valuation allowance		—			—			(13	)		(0.7	)%
Total	$	373			30.8	%	$	131			6.5	%

The effective income tax rate for 2018 was favorably impacted by the Tax Cuts and Jobs Act of 2017 (the “2017 Act”), which was signed into law on December 22, 2017. The 2017 Act included a reduction in the federal corporate tax rate to 21%. The favorable impact of the reduction in the federal corporate tax rate was partially offset by certain international tax provisions during 2018, including the Global Intangible Low-taxed Income (“GILTI”) provisions and the mandatory repatriation of undistributed foreign earnings, that negatively impacted the effective income tax rate. In addition, the effective income tax rate for 2018 was favorably impacted by the research and development tax credit.

In response to the 2017 Act, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") which allowed issuers to recognize provisional estimates of the impact of the 2017 Act in their financial statements and adjust in the period in which the estimate becomes finalized, or in circumstances where estimates cannot be made, to disclose and recognize within a one-year measurement period. At December 31, 2017 and throughout 2018, the Company applied the guidance described under SAB 118 and recorded provisional estimates for the effects of the 2017 Act in connection with the following: one-time transition tax, re-measurement of deferred tax assets and liabilities, tax on GILTI and the impact of the 2017 Act on the Company’s permanent reinvestment assertions with respect to its undistributed earnings. As of December 31, 2018, the Company has now completed the accounting for the income tax effects of the 2017 Act. As a result, the Company recognized additional tax expense of $76,000 which consisted of additional income tax expense associated with the adjustment to the Company’s original provisional charges recorded in connection with the one-time transition tax and the current year impact of the GILTI provisions.

The 2017 Act subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI as a period cost in the year the tax is incurred.

Components of net deferred income tax assets, including a valuation allowance, are as follows at December 31 (in 000's):

	2018			2017			Change
Assets:
Net operating loss	$	25		$	69		$	(44	)
Deferred revenue		256			122			134
Allowance for doubtful accounts		109			88			21
Stock options		116			184			(68	)
Basis difference in intangible assets		16			9			5
Prepaid D&O Insurance		—			2			(2	)
Foreign tax credits carryforward		1,181			1,181			—
Total deferred tax asset		1,703			1,655			32
Less: Valuation allowance		(1,181	)		(1,181	)		—
Total net deferred tax asset		522			474			32
Liabilities
Prepaid expenses		(11	)		(35	)		24
Capitalized software		(285	)		(475	)		162
Purchase of intangibles		(630	)		(534	)		216
Other		(9	)		(3	)		(5	)
Total deferred tax liability		(935	)		(1,047	)		128
Total net deferred tax asset / (liability)	$	(413	)	$	(573	)	$	160

A valuation allowance of $1,181,000 was recorded against deferred tax assets as of December 31, 2018 and 2017. The valuation allowance relates to a full valuation allowance on the remaining foreign tax credit carryforwards. For the year ended December 31, 2017, the Company released a portion of the valuation allowance in the amount of $13,000 attributable to the utilization of foreign net operating losses, which constituted a final utilization and release of the valuation allowance for foreign net operating losses.

As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. In assessing the recoverability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. It has been determined that is more likely than not that the deferred tax assets attributable to foreign tax credit carryforwards will not be realized, as it has been deemed unlikely that there will be generation of taxable income for the subsidiaries that carry these losses or that sufficient foreign source income would be generated in the appropriate basket to use the foreign tax credits.

The Company had no unrecognized tax benefits as of December 31, 2018 or December 31, 2017. Interest and, if applicable, penalties are recognized related to unrecognized tax benefits in income tax expense. There are no accruals for interest and penalties at December 31, 2018.

Undistributed earnings of the Company’s foreign subsidiaries are insignificant as of December 31, 2018. With the enactment of the 2017 Act, the Company does not consider any of its foreign earnings as indefinitely reinvested.

The Company is subject to income taxation by both federal and state taxing authorities. Income tax returns for the years ended December 31, 2017, 2016 and 2015 are open to audit by federal and state taxing authorities.