Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various states and Canada. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian examinations by tax authorities for years before 2015.

    The provision for income taxes by location of the taxing jurisdiction for the years ended December 31, 2022, 2021 and 2020 consisted of the following:

  2022 2021 2020
Current:
Federal $ 46,999  $ 29,533  $ 11,914 
State 12,962  7,918  3,907 
  59,961  37,451  15,821 
Deferred:
Federal 6,317  209  922 
State 1,369  1,212  (150)
  7,686  1,421  772 
  $ 67,647  $ 38,872  $ 16,593 
A reconciliation of income taxes computed at the U.S. federal statutory income tax rate (21.0% for 2022, 2021 and 2020) to the provision for income taxes reflected in the Company’s Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020 is as follows:
  2022 2021 2020
Tax expense at the statutory rate $ 54,776  $ 32,542  $ 14,566 
State income taxes, net of federal income tax benefit 11,035  7,448  2,602 
Share-based compensation (840) (933) (298)
Other permanent differences (30) 31  48 
Non-deductible compensation 1,435  293  751 
Change in income tax contingency reserves —  (260) (400)
Federal income tax credits (107) (76) (37)
Other 1,378  (173) (639)
  $ 67,647  $ 38,872  $ 16,593 

    The significant components of the deferred tax assets and liabilities at December 31, 2022 and 2021 were as follows:
December 31,
2022		 December 31,
2021
Deferred tax assets:
Accrued expenses $ 13,743  $ 14,837 
Allowance for doubtful accounts 822  839 
Operating lease liabilities 37,599  37,967 
Share-based compensation 4,458  3,769 
Accruals for income tax contingencies 141  154 
Capital loss carryforwards 4,253  4,230 
Net operating loss carryforwards 645  647 
Total gross deferred tax assets 61,661  62,443 
Valuation allowance (4,648) (4,625)
Total net deferred tax assets 57,013  57,818 
Deferred tax liabilities:
Tax over book depreciation 32,888  27,880 
Prepaid expenses 6,600  5,615 
Operating lease right-of-use assets 36,600  38,010 
Goodwill 23,681  20,502 
Intangible assets 8,337  9,218 
Total deferred tax liabilities 108,106  101,225 
Net deferred tax liabilities $ (51,093) $ (43,407)

The Company paid income taxes, net of refunds, of $65,388, $35,766 and $13,463 for the years ended December 31, 2022, 2021 and 2020, respectively.

The sale of Pool resulted in a capital loss in the amount of $4,253, which expires in 2026. The Company concluded that it was more likely than not that the capital loss carryforward will not be realized and therefore, established a valuation allowance of $4,253 to reserve against its capital loss carryforward. The Company also maintains a valuation allowance to reserve against its state net operating loss carryforwards of $395. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assessed the likelihood that its deferred tax assets would be recovered from estimated future taxable income and available tax planning strategies. In making this assessment, all available evidence was considered including economic climate, as well as reasonable tax planning
strategies. The Company believes it is more likely than not that it will realize its remaining net deferred tax assets, net of the valuation allowance, in future years.     

As a result of the Towne acquisition, the Company had approximately $2,000 of federal net operating losses which the Company fully utilized in 2020.

As of December 31, 2022, 2021 and 2020 the Company had state net operating loss carryforwards of $13,574, $13,819 and $16,926, respectively, that expire between 2022 and 2033. The state net operating loss carryforwards are limited to the future taxable income of separate legal entities. There was no change in the valuation allowance for the state net operating loss carryforwards in 2022, 2021 and 2020.

A reconciliation of the beginning and ending amount of unrecognized tax benefits as of and during the years ended December 31, 2022 and 2021 is as follows:
Balance at December 31, 2020 $ 544 
Reductions for settlement with state taxing authorities (326)
Additions for tax positions of current year 23 
Balance at December 31, 2021 241 
Reductions for settlement with state taxing authorities (66)
Additions for tax positions of current year 23 
Balance at December 31, 2022 $ 198 
The Company recognizes income tax benefits from uncertain tax positions where the realization of the ultimate benefit is uncertain. At December 31, 2022 and 2021, the Company had $198 and $241, respectively, of unrecognized income tax benefits, all of which would affect the Company’s effective tax rate if recognized. At December 31, 2022 and 2021, the Company had accrued interest and penalties related to unrecognized tax benefits of $85 and $88, respectively. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in “Interest expense, net” and “Other operating expenses”, respectively.