Perma-Pipe International Holdings, Inc. Income Taxes Disclosure

Note 7 - Income taxes

 

Income from continuing operations before income taxes		2025				2024
Domestic (1)		$	(7,429	)		$	(4,682	)
Foreign			34,922				23,150
Total		$	27,493			$	18,468

 

(1) The domestic loss from continuing operations before income taxes includes corporate overhead costs.

 

Components of income tax expense (benefit)		2025				2024
Current
Federal		$	(4	)		$	(4	)
Foreign			5,615				3,614
State and other			111				150
Total current income tax expense			5,722				3,760
Deferred
Federal			1,210				1,048
Foreign			(88	)			569
Total deferred income tax expense			1,122				1,617
Total income tax expense		$	6,844			$	5,377

 

Repatriation of foreign earnings

As a result of the one-time transition tax from the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”), the Company estimates that distributions from foreign subsidiaries will no longer be subject to incremental U.S. federal income tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction to offset any U.S. federal income tax liability on the undistributed earnings. However, upon repatriation, various state taxes and foreign withholding taxes may be levied on such amounts. Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested. Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these jurisdictions are considered. The Company's liability was $1.3 million and $0.8 million as of January 31, 2026 and 2025, respectively, related to these taxes.

 

Recent U.S. tax legislation

On July 4, 2025, new tax legislation was signed into law (known as the “One Big Beautiful Bill Act” or “OBBBA”), which makes permanent many of the tax provisions enacted in 2017 as part of the Tax Cuts and Jobs Act that were otherwise scheduled to expire at the end of 2025. In addition, the OBBBA makes changes to certain U.S. corporate tax provisions, several of which are not effective until fiscal 2026. The Company evaluated the provisions of the OBBBA effective during fiscal 2025 and determined that there were no material impacts on its consolidated financial statements. The Company is currently evaluating the potential impact of provisions effective after fiscal 2025.

 

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. The Company intends to permanently reinvest the undistributed earnings of its Middle Eastern and Indian subsidiaries. The Middle Eastern and Indian subsidiaries have unremitted earnings of $82.8 million and $14.2 million, respectively, as of January 31, 2026. Unremitted earnings of $51.1 million in the United Arab Emirates would not be subject to withholding tax in the event of a distribution, and $31.7 million of unremitted earnings in Saudi Arabia would be subject to withholding tax of $1.6 million. The Company has not recorded a deferred tax liability related to any financial reporting basis over tax basis related to the investment in these foreign subsidiaries as it is not practical to estimate.

 

The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective income tax rate for the years ended January 31, 2026 and 2025 in accordance with ASU 2023-09 guidance, is detailed in the following table:

 

		2025								2024
						$%								$%
U.S. federal statutory rate		$	5,774				21.0	%		$	3,882				21.0	%
State and local income tax, net of federal income tax effect			7				0.0	%			25				0.1	%
Foreign tax effects
Saudi Arabia
Effect of differences in foreign tax rate			(845	)			(3.1	%)			(873	)			(4.7	%)
Depreciation true-up			(404	)			(1.5	%)			-				0.0	%
Other, net expense			(78	)			(0.3	%)			(250	)			(1.4	%)
Canada
Dividend tax			433				1.6	%			151				0.8	%
Other, net expense			172				0.6	%			112				0.6	%
UAE
Effect of differences in foreign tax rate			(1,209	)			(4.4	%)			(176	)			(1.0	%)
Other, net expense			(67	)			(0.2	%)			159				0.9	%
All other jurisdictions, net expense			191				0.7	%			217				1.2	%
Effect of cross-border tax laws
Global Intangible Low Tax Income Inclusion			3,287				12.0	%			2,201				11.9	%
Tax credits
Research tax credit			443				1.6	%			380				2.1	%
Foreign tax credit			696				2.5	%			-				0.0	%
Other, net			(4	)			0.0	%			(4	)			0.0	%
Changes in valuation allowances			(1,168	)			(4.2	%)			(468	)			(2.5	%)
Nontaxable or nondeductible items			143				0.5	%			114				0.6	%
Changes in unrecognized tax benefits			(354	)			(1.3	%)			(15	)			(0.1	%)
Other, net			(173	)			(0.6	%)			(78	)			(0.4	%)
Total Income Tax Expense/(Benefit)		$	6,844				24.9	%		$	5,377				29.1	%

 

The Company's worldwide effective tax rates ("ETR") were 24.9% and 29.1% in the year ended January 31, 2026 and 2025 respectively. The change in the ETR was largely due to changes in the mix of income and loss in various tax jurisdictions and the domestic GILTI inclusion. State income taxes, net of federal income tax effect, primarily relate to Tennessee and Texas in the year ended January 31, 2026, and primarily relate to Tennessee in the year ended January 31, 2025.

 

 

Components of deferred income tax assets		2025				2024
U.S. Federal NOL carryforward		$	3,692			$	4,870
Deferred compensation			301				222
Research tax credit			930				1,240
Foreign NOL carryforward			235				255
Foreign tax credit			1,915				2,580
Other accruals not yet deducted			354				202
State NOL carryforward			1,566				1,544
Accrued commissions and incentives			1,004				1,020
Inventory reserve			140				118
Lease liability			1,077				1,034
Deferred tax assets, gross			11,214				13,085
Valuation allowance			(4,115	)			(5,277	)
Total deferred tax assets, net of valuation allowances		$	7,099			$	7,808
Components of the deferred income tax liability
Depreciation		$	(104	)		$	(530	)
Foreign subsidiaries unremitted earnings			(1,313	)			(813	)
Prepaid			(90	)			(77	)
Right of use asset			(1,036	)			(999	)
Other			(418	)			(70	)
Total deferred tax liabilities		$	(2,961	)		$	(2,489	)
Deferred tax assets, net		$	4,138			$	5,319
Balance sheet classification
Long-term assets		$	5,954			$	6,639
Long-term liability			(1,816	)			(1,320	)
Total deferred tax assets, net of valuation allowances		$	4,138			$	5,319

 

As of January 31, 2026 and 2025, the Company had deferred tax assets of $3.7 million and $4.9 million, respectively, related to gross U.S. Federal net operating loss ("NOL") carryforwards of $16.6 million and $23.8 million, respectively. Of this amount, $9.3 million will begin to expire between tax years 2036 and 2037, with the remainder not subject to expiration. As of January 31, 2026 and 2025, the Company had  deferred tax assets of $1.6 million and $1.5 million, respectively, related to gross state NOLs of $22.2 million and $21.9 million, respectively, that expire between 2026 and 2045. The Company continues to maintain a valuation allowance against its state NOLs. As of January 31, 2026 and 2025, the Company had deferred tax assets of $0.2 million and $0.3 million, respectively, related to gross foreign NOLs of $1.2 million and $1.3 million, respectively, for its subsidiary in Saudi Arabia, which can be carried forward indefinitely and does not have a valuation allowance recorded against it. The ultimate realization of the tax benefit is dependent upon the future generation of operating income in the respective tax jurisdictions.

 

The Company periodically reviews the adequacy of its valuation allowance in all of the tax jurisdictions in which it operates, evaluates future sources of taxable income and tax planning strategies and may make further adjustments based on management's outlook for continued profits in each jurisdiction. 

 

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. The Company continues to maintain a valuation allowance against certain domestic deferred tax assets including its foreign tax credit carryovers, R&D credit carryovers, and state deferred tax assets. Management has released $0.2 million of valuation allowance related to R&D credit carryovers in the period ending January 31, 2026 based upon expectations of future taxable income. The amount of the domestic deferred tax assets considered realizable, however, could be increased if there are changes to the objective positive and negative evidence considered.

 

The Company has a deferred tax asset of $1.9 million for U.S. foreign tax credits after considering the impact of the repatriated foreign earnings and the one-time transition tax. The foreign tax credit deferred tax asset is fully offset with a valuation allowance. The excess foreign tax credits are subject to a ten-year carryforward and will expire on January 31, 2027.

 

The following table summarizes uncertain tax position ("UTP") activity, excluding the related accrual for interest and penalties:

 

		2025				2024
Balance at beginning of year		$	1,409			$	1,433
Decreases in positions taken in a prior period			(7	)			(3	)
Increases in positions taken in a current period			209				224
Decreases due to lapse of statute of limitations			(445	)			(131	)
Decreases due to settlements			(132	)			(114	)
Balance at end of year		$	1,034			$	1,409

 

Included in the total UTP liability were estimated accrued interest and penalties of $0.5 million and $0.4 million as of  January 31, 2026 and 2025, respectively. These non-current income tax liabilities are recorded in other long-term liabilities in the Consolidated Balance Sheet and recognized as an expense during the period. The Company's policy is to include interest and penalties in income tax expense. On January 31, 2026, the Company did not anticipate any significant adjustments to its unrecognized tax benefits within the next twelve months. Included in the balance on January 31, 2026 were amounts offset by deferred taxes (i.e. temporary differences) or amounts that could be offset by refunds in other taxing jurisdictions (i.e., corollary adjustments). Upon reversal, $1.3 million of the amount accrued on  January 31, 2026 would impact the future ETR.

 

The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Tax years related to January 31, 2023, 2024, and 2025 are open for federal and state tax purposes. In addition, federal and state tax years January 31, 2007 through January 31, 2010 are subject to adjustment on audit, up to the amount of research tax credit generated in those years. Any NOL carryover can still be adjusted by the Internal Revenue Service in future years’ audits.

 

The Company's management periodically estimates the probable tax obligations of the Company using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which the Company transacts business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, as well as changes to or further interpretations of regulations. If such changes take place, there is a risk that the tax rate may increase or decrease in any period. Tax accruals for tax liabilities related to potential changes in judgments and estimates for federal, foreign and state tax issues are included in other long-term liabilities on the Consolidated Balance Sheets.

 

The components of income taxes paid, net of refunds received, consisted of the following (in thousands):

 

Income taxes paid, net (in thousands)		2025				2024
US federal		$	(4	)		$	(3	)
US state and local			8				28
Foreign
Saudi Arabia			2,327				1,831
India			531				1,030
Canada			497				742
UAE			558				-
Other			138				86
			4,051				3,689
Total		$	4,055			$	3,714