Note 11 - Income Tax

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(11) Income Tax

The Company’s domestic and foreign net income before provision for income taxes for the years ended December 31, 2022, 2021, and 2020 consists of the following (in thousands):

	Years Ended December 31,
	2022		2021		2020
Domestic	$	34,654	$	21,205	$	16,283
Foreign		18,064		-		-
Total		52,718		21,205		16,283

The Company’s income tax provision for the years ended December 31, 2022, 2021, and 2020 consists of the following (in thousands):

	Years Ended December 31,
	2022			2021			2020
Current
Federal	$	11,238		$	5,793		$	2,223
State		2,309			1,320			555
Foreign		1,863			-			-
Total Current		15,410			7,113			2,778
Deferred
Federal		(3,856	)		(1,399	)		(28	)
State		(624	)		(395	)		164
Foreign		(1	)		-			-
Total Deferred		(4,481	)		(1,794	)		136
Total income tax provision	$	10,929		$	5,319		$	2,914

The approximate tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2022			2021
Deferred tax assets:
Reserves	$	450		$	380
Inventory capitalization		305			706
Compensation programs		2,120			1,842
Equity-based compensation		690			668
Lease liability		3,298			2,427
Intangible assets		1,132			877
Deferred revenue		1,115			365
Other		362			17
Gross deferred tax assets		9,472			7,282
Valuation allowance		-			(17	)
Net deferred tax assets		9,472			7,265
Deferred tax liabilities:
Excess of book over tax basis of fixed assets		(2,782	)		(4,481	)
Goodwill		(2,445	)		(3,628	)
Right of use asset		(3,245	)		(2,419	)
Total deferred tax liabilities		(8,472	)		(10,528	)
Net long-term deferred tax assets (liabilities)	$	1,000		$	(3,263	)

The amounts recorded as deferred tax assets as of December 31, 2022 and 2021 represent the amount of tax benefits of existing deductible temporary differences or carryforwards that are more likely than not to be realized through the generation of sufficient future taxable income within the carryforward period. The Company had gross deferred tax assets of approximately $9.5 million at December 31, 2022, that it believes are more likely than not to be realized in the carryforward period. Management reviews the recoverability of deferred tax assets during each reporting period.

The Company has provided a valuation allowance of zero and $17 thousand at December 31, 2022 and 2021, respectively, for deferred tax assets (net of federal tax benefit).

The actual tax provision for the years presented differs from that derived from using a U.S federal statutory rate of 21% to income before income tax expense as follows:

	Years Ended December 31,
	2022			2021			2020
U.S. federal statutory rate		21.0	%		21.0	%		21.0	%
Increase (decrease) in income taxes resulting from:
State taxes, net of federal tax benefit		3.2			4.0			4.2
Meals and entertainment		-			-			0.1
Tax credits		(0.7	)		(1.7	)		(7.2	)
Return to provision adjustments		-			0.7			-
Foreign rate differential		(3.7	)		-			-
GILTI impact		0.8			-			-
Excess tax benefits on equity awards		-			-			(1.2	)
Excess compensation		0.8			0.7			0.8
Other		(0.7	)		0.6			0.2
Change in valuation allowance		-			(0.2	)		-
Effective tax rate		20.7	%		25.1	%		17.9	%

The Company’s foreign subsidiary earnings are subject to current U.S. taxation under the Tax Cuts and Jobs Act of 2017, which also repealed U.S. taxation on the subsequent repatriation of those earnings. We intend to repatriate substantially all of our future foreign subsidiary earnings.  The repatriation of earnings outside of the U.S. generally does not represent a material net tax impact to the Company. The withholding taxes associated with the Company’s earnings in the Dominican Republic are generally fully creditable against the Company US tax liability and therefore do not produce any incremental tax consequences.  The earnings of the Company’s other foreign subsidiaries, and therefore the withholding taxes associated with those earnings, are not material as of December 31, 2022.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, as well as Ireland and Costa Rica.  It currently does not have a local filing obligation with respect to its subsidiary in the Dominican Republic.  The Company has not been audited by any state for income taxes with the exception of returns filed in Michigan which have been audited through 2004, income tax returns filed in Massachusetts which have been audited through 2007, income tax returns filed in Florida which have been audited through 2019, income tax returns filed in New Jersey which have been audited through 2012, income tax returns in Colorado which have been audited through 2017, and income tax returns in Iowa which have been audited  through 2019. The Company’s federal tax return is currently being audited for the years 2019 and 2020. Federal and state tax returns for the years 2019 through 2022 remain open to examination by the IRS and various state jurisdictions.  The Company’s non-US tax returns in Ireland and Costa Rica are open back to 2018.

At December 31, 2022 and 2021, the Company did not have any gross unrecognized tax benefits (“UTB”) resulting from uncertain tax positions.