Entity information:
(
1
1
)
INCOME TAXES
 
We are subject to Federal and certain state income taxes. In addition, we are taxed in certain foreign countries.

As previously discussed in Note
2,
on
December 22, 2017
the President of the United States signed into law the Tax Act.
The
two
principal elements of the Tax Act impacting our
2017
consolidated statement of operations and our balance sheet as of
December 31, 2017
are the reduction in the corporate tax rate from
35%
to
21%
and the
one
-time transition tax that is imposed on the previously unremitted earnings of our foreign subsidiaries.
As a result of the legislative changes enacted, we were required to revalue our deferred tax assets and liabilities to the new rate of
21%
as of
December 31, 2017,
which resulted in our recording a current period tax benefit of
$1,743
in our
2017
consolidated statement of operations and a corresponding reduction in the amount of the net deferred tax liability. Due to the complexities involved in determining the previously unremitted earnings of our foreign subsidiaries, we are still in the process of obtaining, preparing and analyzing the required information. We have recorded a provisional amount for the transition tax payable on those unremitted earnings. The provisional amount recorded, net of related foreign tax credits, is a tax of approximately
$476.
The rate of tax paid is
14%
of the foreign earnings.
 
Earnings before income taxes was as follows:
 
   
Years Ended

December 31,
  
   
2017
    
2016
  
Domestic
   $
2,580
     $
3,345
  
Foreign
    
1,258
      
862
  
Total
   $
3,838
     $
4,207
  
 
Income tax expense (benefit) was as follows:
 
   
Years Ended

December 31,
  
   
2017
    
2016
  
Current
                
Domestic -- Federal
   $
4,106
     $
1,295
  
Domestic -- state
    
175
      
74
  
Foreign
    
212
      
45
  
Total
   $
4,493
     $
1,414
  
Deferred
                
Domestic -- Federal
   $
(1,886
 )   $
(39
 )
Domestic -- state
    
244
      
10
  
Foreign
    
12
      
164
  
Total
    
(1,630
 )    
135
  
Income tax expense
   $
2,863
     $
1,549
  
 
Deferred income taxes reflect the net tax effect of net operating loss and tax
credit carryforwards as well as temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a summary of the significant components of our deferred tax assets and liabilities as of
December 31, 2017
and
2016:
 
   
December 31,
  
   
2017
    
2016
  
Deferred tax assets:
                
Net operating loss (state and foreign)
   $
444
     $
71
  
Tax credit carryforwards
    
206
      
-
  
Inventories
    
185
      
182
  
Accrued vacation pay and stock-based compensation
    
156
      
161
  
Depreciation of property and equipment
    
97
      
580
  
Allowance for doubtful accounts
    
47
      
55
  
Accrued warranty
    
20
      
9
  
Acquisition costs
    
15
      
28
  
Intangibles
    
-
      
311
  
Other
    
15
      
7
  
Total
    
1,185
      
1,404
  
Valuation allowance
    
(370
 )    
-
  
Deferred tax assets
    
815
      
1,404
  
Deferred tax liabilities:
                
Net intangible assets
    
(3,421
 )    
(212
 )
Unremitted earnings of foreign subsidiaries
    
-
      
(82
 )
Deferred tax liabilities
    
(3,421
 )    
(294
 )
Net deferred tax assets (l
iabilities)
   $
(2,606
 )   $
1,110
  
 
The net change in the valuation allowance for the years ended
December 31, 2017
and
2016
was an increase of
$370
and a decrease of
$15,
respectively. In assessing the ability to realize the deferred tax assets, we consider whether it is more likely than n
ot 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 during periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the total deferred tax assets, we will need to generate future taxable income prior to the expiration of net operating loss and tax credit carryforwards which expire in various years through
2037.
 
An analysis of the effective tax rate for the years ended
December 31, 2017
and
2016
and a reconciliation from the expected statutory rate o
f
35%
(for
2017
) and
34%
(for
2016
) is as follows:
 
   
Years Ended

December 31,
  
   
2017
    
201
6
  
Expected income tax provision at U.S. statutory rate
   $
1,343
     $
1,430
  
Increase (decrease) in tax from:
                
Federal tax rate changes
    
(1,843
 )    
-
  
Current
year tax credits (foreign and research)
    
(379
 )    
(140
 )
Domestic production activities deduction
    
(290
 )    
(112
 )
Foreign income tax rate differences
    
(229
 )    
(258
 )
Restricted stock
    
(59
 )    
-
  
Nondeductible expenses
    
2,463
      
14
  
Domestic tax expense, net of
Federal benefit
    
791
      
55
  
Federal transition tax payable
    
476
      
-
  
Deemed dividend from foreign subsidiaries
    
423
      
396
  
Acquisition costs
    
142
      
-
  
NOL carryforwards utilized
    
36
      
180
  
Changes in valuation allowance
    
17
      
(15
 )
Other
    
(28
 )    
(1
 )
Income tax expense
   $
2,863
     $
1,549
  
 
In accounting for income taxes, we follow the guidance in ASC Topic
740
(Income Taxes) regarding the recognition and measurement of uncertain tax positions in our financial statements. Recognition involves a determination of whether it is more likely than
not
that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information. Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of
December 31, 2017
and
2016,
we did
not
have an accrual for uncertain tax positions.

We file U.S. income tax returns and multiple state and foreign income tax returns. With few exceptions, the U.S. and state income tax returns filed for the tax years ending on
December 31, 2015
and thereafter are subject to examination by the relevant taxing authorities. During the
first
quarter of
2017,
the U.S. taxing authority completed an examination of our federal income tax return for the year ended
December 31, 2014
and there were
no
changes to the tax return as originally filed.