Income Taxes

12 Months Ended

Dec. 31, 2020

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Act”) was signed into law, enacting a broad range of tax reform legislation affecting businesses, including reducing the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. The company recognized the income tax effects of the 2017 Act in accordance with Staff Accounting Bulletin No. 118 and revalued its federal deferred tax assets based upon the new 21% rate, which resulted in an $11.4 million provisional charge recorded to income tax expense during the year ended December 31, 2017. During 2018, the Company completed the accounting for all of the enactment-date income tax effects of the 2017 Act and recognized a $1.2 million tax benefit related to adjustments to the provisional amount recorded as of December 31, 2017.

In February 2019, to align compensation and benefit plans after completion of the merger with CEC, the Compensation Committee of the Company’s Board of Directors took action to terminate all deferred compensation arrangements, including for employees already participating in such arrangements. These changes affect the tax deductibility of certain arrangements, which resulted in a discrete item recorded during the three months ended March 31, 2019, reducing the Company’s deferred tax assets by $11.5 million, and increasing the Company’s 2019 effective tax rate and future cash tax payments.

The income tax provision (benefit) for the years ended December 31, 2018, 2019 and 2020 is summarized below (in thousands):


	2018		2019		2020
Current:
Federal	$	9,069	$	37,878	$	31,398
State	3,785		11,584		9,786
Foreign	—		—		125
Total current	12,854		49,462		41,309
Deferred:
Federal	(13,381)		(7,009)		(8,537)
State	(2,941)		133		(538)
Foreign	—		—		(4,545)
Total deferred	(16,322)		(6,876)		(13,620)
Total provision (benefit) for income taxes	$	(3,468)	$	42,586	$	27,689

The tax effects of the principal temporary differences that give rise to the Company’s net deferred tax liability are as follows as of December 31, 2019 and 2020 (in thousands):


	2019		2020
Lease liabilities	$	27,074	$	28,017
Allowance for credit losses	8,884		14,083
Contract liabilities	8,139		8,500
Loss carryforward	4,459		7,307
Other	1,955		6,713
Stock-based compensation	6,322		6,318
Other facility-related costs	489		582
Intangible assets	(65,777)		(84,515)
Property and equipment	(13,120)		(20,421)
Right-of-use lease assets	(21,673)		(19,991)
Valuation allowance	(4,694)		—
Net deferred tax liability	$	(47,942)	$	(53,407)

The valuation allowance for deferred tax assets as of December 31, 2019 was $4.7 million and was primarily related to capital loss carryforwards acquired in the merger with CEC. The Company concluded that it was more likely than not that the deferred tax asset for the capital loss carryforwards would not be realized due to a lack of history of recognizing capital gains. In 2020, the capital loss carryforwards expired and the Company reversed the valuation allowance associated with the capital loss carryforwards, which resulted in the Company having no valuation allowance for deferred tax assets as of December 31, 2020. As of December 31, 2020, Loss carryforward consists of net operating losses related to the ANZ acquisition which may be carried forward indefinitely.

As of December 31, 2019 and 2020, the Company’s liabilities for unrecognized tax benefits are included in other long-term liabilities in the consolidated balance sheets. Interest and penalties, including those related to uncertain tax positions, are included in the provision for income taxes in the consolidated statements of income (loss). The Company recognized $145,000 and $64,000 of expense related to interest and penalties in 2019 and 2020, respectively. The total amount of interest and penalties included in the consolidated balance sheets was $119,000 and $45,000 as of December 31, 2019 and 2020, respectively.

The following table summarizes changes in unrecognized tax benefits, excluding interest and penalties, for the respective periods (in thousands):


	Year Ended December 31,
	2019		2020
Beginning unrecognized tax benefits	$	624	$	1,165
Additions for tax positions taken in the prior year	845		30
Reductions for tax positions taken in prior years	(304)		(881)
Ending unrecognized tax benefits	$	1,165	$	314

The Company does not anticipate significant changes to unrecognized tax benefits within the next 12 months. As of December 31, 2020, $0.2 million of the Company’s total unrecognized tax benefits would favorably affect the Company’s effective tax rate, if recognized.

A reconciliation between the Company’s statutory tax rate and the effective tax rate for the years ended December 31, 2018, 2019, and 2020 is as follows:


	2018		2019		2020
Statutory federal rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefits	(1.4)		4.6		5.6
Termination of deferred compensation arrangements	—		9.2		—
Transaction costs	(6.2)		—		0.6
Excess tax benefit on share-based compensation	15.5		(2.6)		(2.0)
Impact of foreign operations	—		—		(1.2)
Impairment of intangible assets	(15.3)		—		—
Other	4.5		2.2		0.3
Effective tax rate	18.1	%	34.4	%	24.3	%

Cash payments for income taxes were $13.4 million, $48.8 million, and $45.4 million in 2018, 2019, and 2020, respectively.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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