Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

3. Income Taxes

We are subject to future federal, state, and foreign income taxes and have recorded net deferred tax assets on the Consolidated Balance Sheets at December 31, 2021 and 2020. Deferred tax assets and liabilities are determined based on the difference between the financial accounting and tax bases of assets and liabilities. We present below significant components of our deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows (in thousands):

	December 31,
	2021		2020
Deferred tax assets:
Accounts receivable	$                   570		$                       832
Accrued liabilities	9,273		8,407
Equity-based compensation	7,763		5,902
Capitalized costs	515		578
Accrued sales taxes	196		145
Operating lease liabilities	4,593		8,828
State tax credits	4,521		3,408
Foreign subsidiary net operating losses	-		78
Tax credit - foreign	1,238			-
Valuation allowance	(4,403)		(3,375)
Other	531		659
		24,797	25,462
Deferred tax liabilities:
Intangible Assets	7,380		7,414
Depreciation	666		1,250
Deferred commissions	4,763		2,713
Operating lease right-of-use assets	4,338		8,325
	17,147		19,702
Net deferred tax assets	$	7,650	$	5,760

We present below income from domestic and foreign operations before income tax expense for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):

	Year Ended December 31,
	2021		2020		2019
Domestic	$	120,565	$	101,681	$	104,878
Foreign		13,507		12,095		11,199
Total	$	134,072	$	113,776	$	116,077

The components of our income tax provision for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):

	Year Ended December 31,
	2021			2020			2019
Current:
Federal		14,042		$	13,860		$	18,682
State		5,188			4,793			5,711
Foreign		6,309			6,847			7,323
		25,539		$	25,500		$	31,716
Deferred:
Federal		(427	)		(393	)		(863	)
State		(531	)		1,113			(326	)
Foreign		(981	)		316			(212	)
		(1,939	)		1,036			(1,401	)
Total	$	23,600		$	26,536		$	30,315

We currently have a tax holiday in India under the Special Economic Zone Act through March 2029.  As a result of this holiday, we had pre-tax income of approximately $8.7 million, for the year ended December 31, 2021, that was not subject to tax.  Separately, we are subject to India’s Minimum Alternate Tax (“MAT”) and accordingly incurred income tax expense of approximately $1.2 million in 2021.  The impact on diluted earnings per share if the income had been fully taxable would have been a decrease of $0.02 per share in 2021.

We have tax credit carry-forwards of approximately $5.7 million available to offset future state tax. These tax credit carry-forwards expire in 2025 to 2031. These credits represent a deferred tax asset of $4.5 million after consideration of the federal benefit of state tax deductions. A valuation allowance of $3.2 million has been established for these credits because the ability to use them is not more likely than not. We also have a tax credit carry-forward of approximately $1.2 million available to offset future foreign tax.  This tax credit carryforward expires in 2036.

At December 31, 2021 we had approximately $62.2 million of undistributed earnings and profits. The undistributed earnings and profits are considered previously taxed income and would not be subject to U.S. income taxes upon repatriation of those earnings, in the form of dividends.  The undistributed earnings and profits are considered to be permanently reinvested, accordingly no provision for local withholdings taxes have been provided, however, upon repatriation of those earnings, in the form of dividends, we could be subject to additional local withholding taxes.  

We present below a summary of the items that cause recorded income taxes to differ from taxes computed using the statutory federal income tax rate for the years ended December 31, 2021, 2020 and 2019:

	Year Ended December 31,
	2021			2020			2019
Statutory federal income tax rate		21.0	%		21.0	%		21.0	%
Effect of:
State income tax, net of federal benefit		3.6			3.9			3.5
State credit carryforwards		(0.8	)		0.5			1.3
U.S. federal R&D tax credit		(1.8	)		(1.9	)		(1.9	)
Excess benefit of equity compensation		(4.9	)		(3.4	)		(0.1	)
Employee compensation limitation		3.4			2.7			2.1
Global Intangible Low Taxed Income (GILTI)		0.2			0.1		-
Foreign-derived intangible income (FDII) deduction		(3.1	)		(2.7	)		(3.1	)
Foreign operations		(0.7	)		1.0			1.1
Tax contingencies		(0.3	)		1.9			3.7
Other permanent differences		0.3			(0.2	)		(0.6	)
Change in valuation allowance		0.7			0.4			(0.9	)
Income taxes		17.6	%		23.3	%		26.1	%

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended December 31, 2021, 2020 and 2019 (in thousands):

	December 31,
	2021			2020			2019
Unrecognized tax benefits at January 1,	$	(12,804	)	$	(11,239	)	$	(7,113	)
Gross amount of increases in unrecognized tax benefits as a    result of tax positions taken during a prior period		(408	)		(118	)		(2,428	)
Gross amount of decreases in unrecognized tax benefits as a     result of tax positions taken during a prior period		147			1,598			445
Gross amount of increases in unrecognized tax benefits as a    result of tax positions taken during the current period		(3,117	)		(3,256	)		(2,489	)
Reductions to unrecognized tax benefits relating to    settlements with taxing authorities		148		-			-
Reductions to unrecognized tax benefits as a result of a lapse of    the applicable statute of limitations		2,848			211			346
Unrecognized tax benefits at December 31,	$	(13,186	)	$	(12,804	)	$	(11,239	)

Our unrecognized tax benefits totaled $13.2 million and $12.8 million as of December 31, 2021 and 2020, respectively. Included in these amounts are unrecognized tax benefits totaling $11.8 million and $11.9 million as of December 31, 2021 and 2020, respectively, which, if recognized, would affect the effective tax rate.

We recognize potential accrued interest and penalties related to unrecognized tax benefits within our global operations in income tax expense. For the years ended December 31, 2021, 2020 and 2019, the Company recognized the following income tax expense: $0.4 million, $0.4 million, and $0.5 million, respectively, for the potential payment of interest and penalties. Accrued interest and penalties were $1.3 million and $2.0 million for the years ended December 31, 2021 and 2020. We conduct business globally and, as a result, file income tax returns in the United State federal jurisdiction and in many state and foreign jurisdictions. We are generally no longer subject to U.S. federal, state, and local, or non-US income tax examinations for the years before 2010. Due to the expiration of statutes of limitations in multiple jurisdictions globally during 2020, the Company anticipates it is reasonably possible that unrecognized tax benefits may decrease by $2.6 million.