Annual report pursuant to Section 13 and 15(d)

Income Taxes (Notes)

v3.21.1
Income Taxes (Notes)
 12 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes:The Company utilizes the liability method of accounting for income taxes and deferred taxes which are determined based on the differences between the financial statements and tax bases of assets and liabilities given the provisions of the enacted tax laws. In assessing the realizability of the deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized through the generation of future taxable income. In making this determination, the Company assessed all of the evidence available at the time including recent earnings, forecasted income projections, and historical financial performance. The Company has fully reserved deferred tax assets as a result of this assessment.
The income tax (benefit) expense from continuing operations is summarized as follows:
  Fiscal Year Ended March 31,
(in thousands) 2021 2020
Federal:
Current $ 6  $ (1)
Deferred —  — 
6  (1)
State:
Current (46) 19 
Deferred —  — 
(46) 19 
Foreign:
Current 18  18 
Deferred —  — 
18  18 
Total $ (22) $ 36 
The statutory federal income tax rate is reconciled to the Company's effective income tax rates as follows:
  Fiscal Year Ended March 31,
  2021 2020
Statutory federal income tax rate 21.0  % 21.0  %
PPP loan forgiveness 12.5  — 
Meals and entertainment —  (0.2)
State income tax, net of federal tax effect (35.7) 1.0 
Valuation allowance 9.2  (20.6)
Tax reserve assessment 36.6  3.8 
Expiration of tax attribute (36.6) (3.8)
Foreign tax credit (1.9) (0.2)
Equity compensation (3.9) (1.8)
Other (0.4) 0.4 
Effective income tax rate 0.8  % (0.4) %
Components of the net deferred income tax assets are as follows:
  March 31,
(in thousands) 2021 2020
Deferred income tax assets:
Allowance for doubtful accounts $ 26  $ 26 
Foreign tax credit carryforward 759  810 
Depreciation 159  165 
Deferred revenue 251  339 
Accrued compensation 189  214 
Inventory reserves 710  817 
Accrued warranty 32  41 
Net operating loss carryforward 36,858  37,033 
Intangibles and goodwill 875  705 
Other 727  691 
Gross deferred tax assets 40,586  40,841 
Valuation allowance (40,586) (40,841)
Net deferred income tax assets —  — 
In fiscal years 2021 and 2020, the Company continued to maintain a full valuation allowance on deferred tax assets. The valuation allowance decreased by $0.3 million in fiscal year 2021. The Company’s ability to utilize NOL carryforwards and other tax attributes to reduce future federal taxable income is subject to potential limitations under Internal Revenue Code Section 382 (“Section 382”) and its related tax regulations. The utilization of these attributes may be limited if certain ownership changes by 5% stockholders (as defined in Treasury regulations pursuant to Section 382) and the effects of stock issuances by the Company during any three-year period result in a cumulative change of more than 50% in the beneficial ownership of the Company. The Company completed the Section 382 analysis for fiscal year 2021 and has concluded there were no ownership changes during the fiscal year 2021 that triggered a Section 382 limitation. If it is determined that an ownership change has occurred under these rules, the Company would generally be subject to an annual limitation on the use of pre-ownership change NOL carryforwards and certain other losses and/or credits. In addition, certain future transactions regarding the Company's equity, including the cumulative effects of small transactions as well as transactions beyond the Company’s control, could cause an ownership change and therefore a potential limitation on the annual utilization of the deferred tax assets.

As of March 31, 2020, the Company has $0.3 million tax receivables associated with a prior alternative minimum tax (“AMT”) credit carryforward. On March 27, 2020, the “CARES Act was signed into law. Among the changes to the U.S. federal income tax rules, the CARES Act accelerated the timeframe for refunds of AMT credits. The Company recovered the entire amount in fiscal year 2021 via tax refunds. Under the CARES Act, the Company is deferring the employer portion of social security taxes and will apply for a refund of its Alternative Minimum Tax credit. For the fiscal year ended March 31, 2021, the Company has deferred $0.4 million of payroll taxes. The payroll taxes will be deferred until the due dates of December 31, 2021 and December 31, 2022. The Company records a deferred tax asset for the payroll tax liability that is not deductible in fiscal year 2021 for income tax purposes. Also under the CARES Act, the PPP was established to provide loans to eligible businesses. Under the terms of the PPP, certain amounts of the loan may be forgiven if used for qualifying expenses, as described in the CARES Act. For fiscal year 2021, the Company is excluding $1,637,000 of income related to the loan forgiveness from taxable income. The Company continues to monitor government economic stabilization efforts and is awaiting further IRS clarification to determine eligibility for the calendar year 2021 employee retention credit (“ERC”). The Company recorded an income tax benefit from continuing operations of $22,000 and income tax expenses of $36,000 in fiscal years 2021 and 2020, respectively.
The Company has, on a tax-effected basis, approximately $0.8 million in tax credit carryforwards and $29.7 million of federal net operating loss carryforwards that are available to offset taxable income in the future. The tax credit carryforwards will begin to expire in fiscal year 2022. The federal net operating loss (“NOL”) carryforwards begin to expire in fiscal year 2022. The Company's net operating losses and credits have a finite life primarily based on the 20-year carryforward rule for federal NOLs generated through March 31, 2018. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). Under rules enacted by the Tax Act, tax losses incurred in fiscal year 2019 and future periods will not expire, thereby extending the period by which the Company's deferred tax assets can be realized. However, federal NOLs generated after fiscal year 2018 are subject to a limitation of 80% of the current taxable income. In fiscal year 2021, $0.1 million of federal tax credits expired. State tax credit carryforwards and net operating loss carryforwards, on a tax effected basis and net of federal tax benefits, are $0.1 million and $7.2 million, respectively. The remaining state tax credit carryforwards and state net operating loss carry forwards begin to expire in fiscal year 2022. In fiscal year 2021, $1.1 million of state net operating loss carryforwards expired.
The Company accounts for uncertainty in income taxes under ASC 740, which prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits for fiscal years 2020 and 2021 is as follows:
(in thousands)
Unrecognized tax benefits at March 31, 2019 $ 2,182 
Additions based on positions related to fiscal year 2020 — 
Reductions as a result of expirations of applicable statutes of limitations (377)
Unrecognized tax benefits at March 31, 2020 1,805 
Additions based on positions related to fiscal year 2021 — 
Reductions as a result of expirations of applicable statutes of limitations (1,050)
Unrecognized tax benefits at March 31, 2021 $ 755 
If the unrecognized tax benefit balances at March 31, 2021 and 2020, were recognized, it would affect the effective tax rate.
The Company recognized interest and (benefit)/penalties of $(20,400) and $2,600 as a component of income tax expense in fiscal year 2021 and 2020, respectively. As of March 31, 2021 and 2020, accrued interest and penalties were $0 and $20,400, respectively.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates.
With few exceptions, the major jurisdictions subject to examination by the relevant taxable authorities, and open tax years, stated as the Company's fiscal years, are as follows:
Jurisdiction Open Tax Years
U.S. Federal 2017 - 2020
U.S. States 2016 - 2020
Foreign 2016 - 2020
Since net operating loss carryovers are subject to audit based on the year in which they are utilized, all of the Company’s net operating losses generated in the past are open to adjustment by the Internal Revenue Service or state tax authorities (some states have shorter carryover periods).