Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	Years ended December 31,
	2023		2022		2021
Current
Federal	$	35,434	$	35,365	$	15,623
State	8,999		19,788		8,399
	44,433		55,153		24,022
Deferred
Federal	(3,638)		(11,552)		3,878
State	(8,806)		(2,726)		3,793
	(12,444)		(14,278)		7,671
Total provision for income taxes	$	31,989	$	40,875	$	31,693

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

	Years ended December 31,
	2023		2022		2021
Tax provision at U.S. federal statutory rates	21.0	%	21.0	%	21.0	%
State income taxes net of federal benefit	11.6		12.1		12.9
Non-deductible permanent items	2.5		0.9		4.0
Variable interest entities	(2.1)		(1.1)		(1.3)
Stock-based compensation	2.8		(0.3)		(1.0)
Change in valuation allowance	(2.6)		4.4		—
Gain on sale of investment	8.5		1.2		(2.1)
NOL adjustment	0.2		0.5		(0.1)
Undistributed dividend	(11.5)		7.2		8.0
Spin-off transaction	3.0		—		—
Other	2.1		1.2		(0.3)
Effective income tax rate	35.5	%	47.1	%	41.1	%

The Company’s effective tax rate differs from the Federal statutory rate of 21% due to increases from state taxes, non-deductible permanent items, stock-based compensation, gain on sale of investment, and a one-time gain in connection with the December 26, 2023 Spin-Off transaction. This is offset by variable interest entities, change in valuation allowance, and a benefit related to the reversal on deferred taxes on undistributed dividends. The Company had previously recorded deferred tax liabilities related to undistributed dividends for taxpaying groups that could not consolidate under US federal tax law. As a result of the spinoff transaction that occurred on December 26, 2023, the separate taxpaying groups now have the ability to consolidate under US federal tax law, resulting in tax benefits on the future payment of the dividends.

Significant components of the Company’s deferred tax assets (liabilities) as of December 31, 2023 and 2022, are shown below (in thousands).

	2023		2022
Deferred tax assets
State taxes	$	2,831	$	2,489
Accrued expenses	1,747		670
Allowance for bad debts	1,718		853
Investment in other entities	1,355		2,145
Net operating loss carryforward	7,551		9,383
Lease liability	10,897		6,470
Unrealized gain	1,284		8,971
Stock options	663		1,011
Other	—		2
Deferred tax assets before valuation allowance	28,046		31,994
Valuation allowance	(5,904)		(8,292)
Net deferred tax assets	22,142		23,702
Deferred tax liabilities
Property and equipment	(329)		(1,840)
Acquired intangible assets	(15,301)		(21,268)
Right-of-use assets	(9,936)		(5,632)
Debt issuance cost	(648)		(725)
Undistributed dividend	—		(8,454)
Deferred tax liabilities	(26,214)		(37,919)
Net deferred tax liabilities	$	(4,072)	$	(14,217)

A valuation allowance of $5.9 million and $8.3 million as of December 31, 2023 and 2022, 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 decreased by $2.4 million in 2023 and increased by $4.3 million in 2022.

As of December 31, 2023, the Company had federal and California net operating loss carryforwards of approximately $21.0 million and $44.8 million, respectively. The federal and California net operating loss carryforwards will expire at various dates from 2027 through 2043; however, $5.3 million of the federal net operating loss carryforwards do not expire and can be carried forward indefinitely. The Company has determined certain NOLs are limited pursuant to Internal Revenue Code Sections 382 and 383, but does not anticipate these NOLs will expire before utilization.

As of December 31, 2023 and 2022, 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, 2019 through December 31, 2022 and for the years ended December 31, 2020 through December 31, 2022, respectively. The Company is currently under audit for federal and California amended tax years ended December 31, 2019, 2020 and 2021. The Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months.