Income Taxes

12 Months Ended

Dec. 31, 2024

Income Taxes

Income Taxes

11. Income Taxes

Provision (Benefit) for Income Taxes

Our provision (benefit) for income taxes relating to continuing operations consists of the following (in thousands):

	December 31,
	2024		2023		2022
Current tax provision (benefit)—
Federal	$	170,844	$	(34,722)	$	58,040
State		39,897		4,222		26,376
Total current		210,741		(30,500)		84,416
Deferred tax provision (benefit)—
Federal		(54,119)		81,119		(80,130)
State		(12,494)		14,177		(14,375)
Total deferred		(66,613)		95,296		(94,505)
Provision (benefit) for income taxes	$	144,128	$	64,796	$	(10,089)

Rate Reconciliation

The provision (benefit) for income taxes for the years ended December 31, 2024, 2023 and 2022 resulted in effective tax rates on continuing operations of 21.6%, 16.7% and (4.3%), respectively. The reasons for the differences between these effective tax rates and the federal statutory rates are as follows (in thousands, except percentages):

	December 31,
	2024			2023			2022
Federal statutory rate of—		21	%		21	%		21	%
Income taxes at the federal statutory rate	$	139,978		$	81,521		$	49,530
Increases (decreases) resulting from—
Net state income taxes		25,748			14,278			9,376
Net unrecognized tax benefits		9,549			9,049			(17,922)
Nondeductible expenses		9,921			5,774			4,045
R&D tax credit		(36,216)			(43,791)			(51,398)
Other		(4,852)			(2,035)			(3,720)
Provision (benefit) for income taxes	$	144,128		$	64,796		$	(10,089)

Following an Internal Revenue Service (“IRS”) survey of the previously filed refund claims for the 2016, 2017 and 2018 tax years, the Joint Committee on Taxation approved such refunds in late January 2022. As a result, our benefit for income taxes in the first quarter of 2022 included a $28.8 million reduction in unrecognized tax benefits plus approximately $1.6 million of net interest income on the refunds.

Our benefit for income taxes in the first quarter of 2022 was further increased by $26.8 million for the expected refunds due to our intention to claim the credit for increasing research activities (the “R&D tax credit”) for the 2019, 2020 and 2021 tax years. In the third quarter of 2022, we claimed the R&D tax credit on our originally filed 2021 federal return and recognized an additional $1.7 million benefit for the 2019, 2020 and 2021 tax years. Additionally, in February 2023, we filed amended federal returns for 2019 and 2020 requesting refunds primarily from claiming the R&D tax credit.

The Inflation Reduction Act was enacted on August 16, 2022. This law, among other provisions, provides a corporate alternative minimum tax on adjusted financial statement income over $1 billion, which is effective for tax years beginning after December 31, 2022, and a 1% excise tax on net corporate stock repurchases after December 31, 2022. The impact of the excise tax is recorded in “Treasury Stock” within our Consolidated Balance Sheet. These provisions were not material to our current year overall financial results, financial position and cash flows.

In early September 2023, the IRS issued interim guidance addressing, together with other topics, the treatment of research and experimental (“R&E”) expenditures for taxpayers using the percentage of completion method to account for taxable income from long-term contracts. We relied on such guidance for the 2022 tax year, and the resulting reduction in taxable revenue offsets the deferral of tax deductions for R&E expenditures pursuant to the Tax Cuts and Jobs Act (2017) for the 2022 tax year. We filed our 2022 federal tax return in October 2023 requesting a refund of our $107.1 million overpayment, which had not been received as of December 31, 2024.

Deferred Tax Assets (Liabilities)

Significant components of the deferred tax assets and deferred tax liabilities as reflected on the Consolidated Balance Sheets are as follows (in thousands):

	Year Ended
	December 31,
	2024		2023
Deferred tax assets—
Accounts receivable and allowance for credit losses	$	4,139	$	3,203
Stock-based compensation		5,329		4,549
Accrued liabilities and expenses		63,519		44,209
Lease liabilities		57,673		51,065
Net operating loss and tax credit carryforwards		2,963		5,919
Goodwill		24,592		—
Intangible assets		21,075		8,570
Research and experimental expenditures		—		195,444
Other		1,685		1,192
Subtotal		180,975		314,151
Valuation allowances		(2,751)		(156)
Total deferred tax assets		178,224		313,995
Deferred tax liabilities—
Property and equipment		(29,970)		(27,049)
Lease right-of-use asset		(57,673)		(51,058)
Long-term contracts		(2,429)		(193,144)
Goodwill		—		(24,452)
Other		(4,936)		(1,689)
Total deferred tax liabilities		(95,008)		(297,392)
Net deferred tax assets	$	83,216	$	16,603

The deferred tax assets and deferred tax liabilities reflected above are included in the Consolidated Balance Sheets as follows (in thousands):

	December 31,
	2024		2023
Deferred tax assets	$	85,441	$	17,723
Deferred tax liabilities	$	2,225	$	1,120

As of December 31, 2024, our deferred tax assets were primarily attributable to accrued liabilities and expenses, goodwill, and intangible assets. Virtually all of the net operating loss (“NOL”) and tax credit carryforwards are for various state jurisdictions, the material amounts of which begin to expire after the year 2035.

We believe, however, that it is more likely than not that the benefits from the various state NOL and tax credit carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $2.8 million on the deferred tax assets related to those state NOL and tax credit carryforwards. If or when recognized, the benefits related to any reversal of the valuation allowance on deferred tax assets as of December 31, 2024 will be recognized as a reduction in our provision for income taxes.

Certain of the state NOL and tax credit carryforwards shown in our income tax returns included unrecognized tax benefits. The deferred tax assets recognized for these NOL and tax credits are presented net of unrecognized tax benefits.

Liabilities for Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding accrued interest and penalties, is as follows (in thousands):

	Year Ended December 31,
	2024		2023		2022
Balance at beginning of year	$	20,579	$	11,530	$	29,452
Additions based on tax positions related to current year		7,591		6,370		3,420
Additions based on tax positions related to prior years		1,958		2,723		7,427
Reductions for tax positions related to prior years		—		(44)		(13)
Reductions for settlements with taxing authorities		—		—		(28,756)
Balance at end of year	$	30,128	$	20,579	$	11,530

As of December 31, 2024, 2023 and 2022, we had $30.1 million, $20.6 million and $11.5 million, respectively, of unrecognized tax benefits, which if recognized in future periods, would impact our effective tax rates. We also accrued $1.8 million, $0.6 million and $0.3 million for potential interest and penalties related to the unrecognized tax benefits as of December 31, 2024, 2023, and 2022, respectively. We recognize potential interest and penalties related to unrecognized tax benefits in our provision for income taxes.

We are subject to taxation in the federal and various state jurisdictions. For the year ended December 31, 2022, our unrecognized tax benefits were reduced by $28.8 million due to favorable settlements with the IRS for the 2016 through 2018 tax years. As of December 31, 2024, we remain open to IRS examination for the 2021 tax year forward.

State income tax returns are generally subject to examination for a period of three to four years after filing the returns. However, the state impact of any federal audit adjustments and/or amendments remains subject to examination by various states for up to one year after formal notification to the states. As of December 31, 2024, we generally remain open to examination by various state taxing authorities for the 2020 tax year forward.

We believe it is reasonably possible that a reduction of up to $5.3 million in unrecognized tax benefits could occur within the next twelve months. Any reduction in our unrecognized tax benefits, due to the future recognition of those tax benefits, would affect our effective tax rates.