Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.1
Income Taxes
 12 Months Ended
Mar. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income taxes included in the consolidated income statement consisted of the following:
Year Ended March 31, 2022 Year Ended March 31, 2021 Year Ended March 31, 2020
Current provision:
Federal provision $ 634  $ (4,662) $ (759)
Foreign provision 8,907  6,098  9,359 
State provision 441  197  279 
Deferred provision:
Federal deferred benefit (231) (1,963) (796)
Foreign deferred benefit (1,396) (1,084) (2,895)
State deferred benefit (22) (107) (46)
Total provision for income taxes $ 8,333  $ (1,521) $ 5,142 
    Deferred income tax assets and liabilities were as follows:
March 31,
2022 2021
Deferred tax assets:
Accrued liabilities and reserves $ 5,483  $ 5,428 
Stock option compensation 736  593 
Foreign deferred benefits 1,626  1,954 
Net operating loss carry-forward 801  1,224 
Inventories 415  383 
Interest limitation 94  204 
Capitalized transaction costs 95  119 
Foreign tax credit carry forward 214  721 
Valuation allowance (248) (282)
Total deferred tax assets $ 9,216  $ 10,344 
Deferred tax liabilities:
Intangible assets $ (5,969) $ (5,959)
Intangible and other - foreign (14,139) (16,789)
Property, plant and equipment (4,277) (4,969)
Prepaid expenses (205) (227)
Unrealized loss on hedge (18) — 
Undistributed foreign earnings (1,340) (820)
Total deferred tax liabilities $ (25,948) $ (28,764)
Net deferred tax liability $ (16,732) $ (18,420)
The Company expects that it is more likely than not that the results of future operations will generate sufficient taxable income to realize its domestic and foreign deferred tax assets, net of valuation allowance reserves.
    The U.S. and non-U.S. components of income (loss) from continuing operations before income taxes were as follows:
Year Ended March 31, 2022 Year Ended March 31, 2021 Year Ended March 31, 2020
U.S. $ 4,240  $ (15,818) $ (8,603)
Non-U.S. 24,185  15,174  25,681 
Income from continuing operations $ 28,425  $ (644) $ 17,078 
The difference between the provision for income taxes and the amount that would result from applying the U.S. statutory tax rate to income before provision for income taxes is as follows:
Year Ended March 31, 2022 Year Ended March 31, 2021 Year Ended March 31, 2020
Notional U.S. federal income tax expense at statutory rate $ 5,969  $ (135) $ 3,586 
Adjustments to reconcile to the income tax provision:
Impact of U.S. global intangible taxes and benefits (210) (1,859) 926 
U.S. net operating loss carry-back rate difference —  (1,470) — 
South Africa divestiture —  526  — 
Rate difference-international subsidiaries 1,223  513  1,181 
Withholding on Canadian intercompany dividend 301  —  — 
Impact on deferred tax liability for statutory rate change 74  332  (1,231)
Undistributed foreign earnings 713  359  259 
U.S. state income tax provision, net 451  48  143 
Charges/(benefits) related to uncertain tax positions 77  79  (408)
Non-deductible charges 150  239  349 
Change in valuation allowance 34  (475) 152 
Other, net (449) 322  185 
Provision for income taxes $ 8,333  $ (1,521) $ 5,142 
On December 22, 2017, the United States enacted significant changes to U.S. tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”).  The Tax Act included significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, a one-time repatriation tax on deferred foreign income (“Transition Tax”), deductions, credits and business-related exclusions. 
    Consistent with provisions allowed under the Tax Act, the net $4,007 calculated Transition Tax liability will be paid over an eight year period beginning in fiscal year 2019. At March 31, 2022, $2,187 of the Transition Tax liability is included in “Other non-current liabilities” in the consolidated balance sheets.  
Given the Tax Act’s significant changes and the opportunities to repatriate cash tax free, we have reevaluated our current permanent reinvestment position. Accordingly, we no longer assert a permanent reinvestment position in most of our foreign subsidiaries. We expect to repatriate certain earnings which will be subject to withholding taxes.  At March 31, 2022 we have accrued $1,340 as an additional deferred tax liability associated with the future repatriation of earnings from jurisdictions that withhold taxes on foreign paid dividends.  
During the year ended March 31, 2021, the Company recorded discrete tax benefits of $1,859 related to updated Internal Revenue Service rules regarding the United States global intangible low-taxed income or ("GILTI tax") and related tax planning elections associated with the GILTI tax rule changes. Under the new rules, Thermon was able to reduce previously incurred GILTI tax under the high tax exception rules. Included with this benefit are certain tax elections that resulted in the reduction of previous tax expense.
During the year ended March 31, 2021, the Company incurred a taxable loss within its operations in the United States. As a result, the net operating loss was available to be carried back to the Company's 2016 tax year when the federal tax rate was 35%. The rate differential resulted in a discrete tax benefit of $1,470.
    As of March 31, 2022, the Company had foreign tax net operating loss carry-forwards ("NOLs") of $3,072. Of this amount, $657 may be carried forward indefinitely. As of March 31, 2022, the tax years 2018 through 2021 remain open to examination by the major taxing jurisdictions to which we are subject.
    At March 31, 2022, reserves for uncertain tax position consisted of uncertain tax positions related to the final Transition Tax that we determined could be overturned if the calculations were examined by tax authorities. The reserves for the Transition Tax will remain subject to examination until January 2025. No reserves are expected to be released within twelve months. Activity within our reserve for uncertain tax positions as well as the penalties and interest are recorded as a component of the Company's income tax expense. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Year Ended March 31, 2022 Year Ended March 31, 2021
Beginning balance $ 808  $ 729 
Release of reserve —  — 
Interest and penalties on prior reserves 77  79 
Reserve for uncertain income taxes - included in "Other non-current liabilities" $ 885  $ 808