Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes (Restated)

Provision for income taxes consisted of the following (in thousands):

	Years ended December 31,
	2022		2021		2020
Current
Federal	$	35,365	$	15,623	$	38,878
State	19,788		8,399		17,070
	55,153		24,022		55,948
Deferred
Federal	(11,552)		3,878		(2,226)
State	(2,726)		3,793		2,622
	(14,278)		7,671		396
Total provision for income taxes	$	40,875	$	31,693	$	56,344

The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of December 31, 2022, the Company had federal and California net operating loss carryforwards of approximately $30.6 million and $42.3 million, respectively. The federal and California net operating loss carryforwards will expire at various dates from 2027 through 2042; however, $19.5 million of the federal operating loss do not expire and can be carried forward indefinitely. Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three years’ period since the last ownership change.

Significant components of the Company’s deferred tax assets (liabilities) as of December 31, 2022 and 2021, are shown below (in thousands). A valuation allowance of $8.3 million and $4.0 million as of December 31, 2022 and 2021, respectively, has been established against the Company’s deferred tax assets related to loss entities the Company cannot consolidate under the federal consolidation rules, as realization of these assets is uncertain. Valuation allowance increased by $4.3 million in 2022.

	2022		2021
Deferred tax assets
State taxes	$	2,489	$	1,706
Accrued expenses	670		1,864
Allowance for bad debts	853		153
Investment in other entities	2,145		3,289
Net operating loss carryforward	9,383		8,841
Lease liability	6,470		4,208
Unrealized gain	8,971		3,007
Stock options	1,011		—
Other	2		—
Deferred tax assets before valuation allowance	31,994		23,068
Valuation allowance	(8,292)		(3,978)
Net deferred tax assets	23,702		19,090
Deferred tax liabilities
Property and equipment	(1,840)		(777)
Acquired intangible assets	(21,268)		(23,763)
Stock options	—		(1,641)
Right-of-use assets	(5,632)		(4,117)
Debt issuance cost	(725)		(988)
Undistributed Dividend	(8,454)		(17,852)
481(a) adjustment	—		(87)
Deferred tax liabilities	(37,919)		(49,225)
Net deferred liabilities	$	(14,217)	$	(30,135)

The provision for income taxes differs from the amount computed by applying the federal income tax rate as follows for the years ended December 31:

	Years ended December 31,
	2022		2021		2020
Tax provision at U.S. federal statutory rates	21.0	%	21.0	%	21.0	%
State income taxes net of federal benefit	12.1		12.9		9.1
Non-deductible permanent items	0.9		4.0		0.3
Variable interest entities	(1.1)		(1.3)		(0.2)
Stock-based compensation	(0.3)		(1.0)		(0.3)
Change in valuation allowance	4.4		—		0.3
Investment basis adjustment	1.2		(2.1)		—
NOL adjustment	0.5		(0.1)		0.1
Undistributed dividend	7.2		8.0		2.0
Other	1.2		(0.3)		(0.8)
Effective income tax rate	47.1	%	41.1	%	31.5	%

The Company’s effective tax rate is different from the federal statutory rate of 21% due primarily to state taxes, tax on undistributed dividends, change in valuation allowance, and permanent adjustments. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. The CARES Act, among other things, permits net operating loss carryovers and carrybacks and modifications on the limitation of business interests. As of December 31, 2022, the Company does not expect the CARES Act to result in any material impact on the Company’s effective tax rate.

As of December 31, 2022 and 2021, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company is subject to U.S. federal income tax, as well as income tax in California. The Company’s and its subsidiaries’ state and federal income tax returns are open to audit under the statute of limitations for the years ended December 31, 2018 through December 31, 2021 and for the years ended December 31, 2019 through December 31, 2021, respectively. The Company does not anticipate material unrecognized tax benefits within the next 12 months.