Income Taxes

12 Months Ended

Jun. 30, 2020

The income tax expense for the fiscal years ended June 30, 2020, 2019 and 2018 consists of the following (in thousands):


	Year ended June 30,
	2020		2019		2018
Income Before Income Taxes:
Domestic	$	12,817	$	6,596	$	8,234
International	1,844		2,634		1,315
	$	14,661	$	9,230	$	9,549
Current Taxes:
Federal	$	1,297	$	222	$	2,413
State	332		176		407
Foreign	1,113		833		150
Total Current Income Tax Provision	$	2,742	$	1,231	$	2,970
Deferred Taxes:
Federal	$	316	$	502	$	377
State	71		109		59
Foreign	(17)		(41)		381
Total Deferred Income Tax Provision	$	370	$	570	$	817
Net Income Tax Provision	$	3,112	$	1,801	$	3,787

The effective income tax rate for the fiscal years ended June 30, 2020, 2019 and 2018 differs from the U.S. Federal statutory income tax rate due to the following:


	Year ended June 30,
	2020		2019		2018
Federal statutory income tax rate	21.0	%	21.0	%	28.0	%
State income taxes, net of federal benefit	3.8	%	3.1	%	2.5	%
Foreign tax rate difference	1.4	%	4.5	%	1.6	%
Tax return to provision true-up	0.0	%	(1.1)	%	(7.4)	%
Limit on future stock compensation due to 162(m)	2.3	%	2.6	%	0.0	%
Foreign withholding tax	3.3	%	0.0	%	0.0	%
Other differences	1.9	%	(0.1)	%	0.2	%
Revalue of deferred for change in federal tax rate	(0.1)	%	(0.6)	%	14.9	%
Permanent differences:
— stock based compensation	(13.6)	%	(7.7)	%	0.7	%
— current year section 162(m) limitation	1.6	%	0.0	%	0.0	%
— foreign derived intangible income deduction	(0.5)	%	(0.1)	%	0.0	%
— domestic production activities deduction	0.0	%	0.0	%	(1.5)	%
— tax credits	(2.3)	%	(3.7)	%	(1.3)	%
— meals and entertainment	0.4	%	0.7	%	0.9	%
— other permanent differences	1.8	%	1.7	%	1.0	%
Change in valuation allowance	0.2	%	(0.8)	%	0.1	%
Net income tax provision	21.2	%	19.5	%	39.7	%

The components of the deferred tax assets and liabilities as of June 30, 2020 and 2019 are as follows (in thousands):


	June 30,
	2020		2019
Deferred tax assets:
Federal, state, and foreign net operating loss carryovers	$	501	$	448
Stock option compensation	824		1,262
Accrued vacation, allowance for returns, bonuses & other	2,067		2,672
Gross deferred tax asset	$	3,392	$	4,382

Deferred tax liabilities:
Patents and trademarks	$	(117)	$	(132)

Property & equipment	(801)		(1,194)
Other	(59)		(104)
Gross deferred tax liabilities	(977)		(1,430)
Less: valuation allowance	(251)		(259)
Deferred tax assets, net	$	2,164	$	2,693

The Company has adopted accounting guidance for uncertain tax positions which provides that in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not of sustaining the position. The measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon recognition of the benefit. Currently, the Company has one uncertain tax position for which it has accrued a liability under ASC 740. Taiwan law specifies that service fees charged for services performed entirely outside of Taiwan do not require the 20% withholding tax typically imposed on service charges. However, in practice the government often asserts that it is not possible to perform the services without any local assistance and assesses the 20% withholding tax on the entire charge. LifeVantage Taiwan pays these types of charges to LifeVantage US in the form of management fees and other expense allocations. LifeVantage US had not previously accrued the taxes on these charges as LifeVantage Taiwan had not actually made the payments. During fiscal 2020, the payments were made, and accordingly, the taxes should now be accrued.

The Company is working with local tax advisors to determine if there are ways to lessen or eliminate the withholding exposure in Taiwan. However, the Company still believes it is more likely than not that it will owe these taxes. The Company has not recorded a corresponding foreign tax credit because under the Tax Cuts and Jobs Act of 2017, the Company's foreign source general basket income has been all but eliminated, so the foreign tax credit limitation is zero or close to zero. The Company is investigating various tax planning strategies to create foreign source income in order to utilize a foreign tax credit against these withholding taxes. As of year-end, the Company has not committed to any mitigation strategies, but if and when in the future the Company does, it will create a deferred tax asset for a foreign tax credit carryforward for these withholding taxes. The Company expects to determine whether it needs to pay these taxes during fiscal 2021, and if it determines it does, it will pay them immediately. Therefore, no additional reserves have been created for interest or penalties at this time.

There were no liabilities for uncertain tax positions for the years ending June 30, 2019 and June 30, 2018. The beginning balance, ending balance, and changes to the liability for uncertain tax positions for the year ending June 30, 2020 are as follows (in thousands):


	2020
Unrecognized tax benefits, July 1	$	—
Gross increases - tax positions in prior period	—
Gross decreases - tax positions in prior period	—
Gross increases - tax positions in current period	480
Settlement	—
Lapse of statute of limitations	—
Currency adjustment	—
Unrecognized tax benefits, June 30	$	480

The tax years open for examination by the Internal Revenue Service (“IRS”) include returns for fiscal years June 30, 2017 through present and the open tax years by state tax authorities include returns for fiscal years June 30, 2016 through present. In addition, the IRS and state tax authorities may examine NOL’s for any previous years if utilized by the Company.

As of June 30, 2020, the Company had utilized all of its Federal net operating loss (“NOL”) carry-forwards. The net operating losses were to expire by June 30, 2024 and are subject to review by the Internal Revenue Service, and are subject to U.S. Internal Revenue Code Section 382 limitations. As of June 30, 2020, state NOLs were $7.5 million and foreign NOLs were $0.6 million.

The total recognized tax benefit from settlement of stock based awards for the period ending June 30, 2020 was $2.0 million.

The Company conducts its business globally. As a result, the Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions, and are subject to examination for the open tax years of June 30, 2016 through June 30, 2020.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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