INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

9.INCOME TAXES

Components of income tax expense are as follows:

	Year Ended December 31,
	2022		2021		2020
	(in thousands)
Current:
Federal	$	17,572	$	(1)	$	(78)
State		1,605		70		1
		19,177		69		(77)
Deferred:
Federal		33,038		356		(178)
State		1,763		(8)		290
		34,801		348		112
Income tax expense	$	53,978	$	417	$	35

Alliance Minerals' Tax Election resulted in the recognition of an initial deferred tax liability of $37.3 million and a corresponding increase to income tax expense for the year ended December 31, 2022.  This increase in income tax expense reduced net income by $37.3 million, or approximately $0.29 per basic and diluted limited partner unit, for the year ended December 31, 2022. Recognition of the initial deferred tax liability and expense is primarily the result of the $177.0 million non-cash acquisition gain recognized in 2019 related to the acquisition of the remaining interests in AllDale Minerals LP ("AllDale I") and AllDale Minerals II, LP ("AllDale II", and collectively with AllDale I, "AllDale I & II") (the "Acquisition Gain").  The Acquisition Gain was recognized to step up to fair value the financial reporting basis of the interests we already owned at the time of acquisition. The tax basis of the underlying properties of AllDale I & II did not include the Acquisition Gain.

Reconciliations of income taxes at the U.S. federal statutory tax rate to income taxes at our effective tax rate are as follows:

	Year Ended December 31,
	2022		2021		2020
	(in thousands)
Income taxes at statutory rate	$	132,956	$	37,626	$	(27,093)
Less: Income taxes at statutory rate on Partnership income not subject to income taxes		(112,032)		(36,577)		26,293
Increase (decrease) resulting from:
State taxes, net of federal income tax		1,492		275		(192)
Change in valuation allowance of deferred tax assets		(317)		(834)		1,151
Deferred taxes related to tax election		37,253		—		—
Tax effect of noncontrolling interest income not subject to income taxes		(5,399)		—		—
Other		25		(73)		(124)
Income tax expense	$	53,978	$	417	$	35

The effective income tax rate for our income tax expense for the year ended December 31, 2022 is less than the federal statutory rate, primarily due to the portion of income not subject to income taxes, partially offset by the effect of the Tax Election previously discussed. The effective income tax rates for our income tax expense for the years ended December 31, 2021 and 2020 are less than the federal statutory rate, primarily due to the portion of income not subject to income taxes.

Significant components of deferred tax liabilities and deferred tax assets are as follows:

	December 31,
	2022		2021
	(in thousands)
Deferred tax liabilities:
Property, plant and equipment	$	(38,349)	$	(2,169)
Total deferred tax liabilities		(38,349)		(2,169)
Deferred tax assets:
Federal loss carryovers and credits		2,139		1,328
Other		1,084		808
Total deferred tax assets		3,223		2,136
Less valuation allowance		—		(317)
Net deferred tax assets		3,223		1,819
Overall net deferred tax liabilities	$	(35,126)	$	(350)

The change in deferred tax liabilities for property, plant and equipment is primarily as a result of the Alliance Minerals' Tax Election and associated impact of the Acquisition Gain discussed above.  

Federal loss carryovers and credits are primarily due to net operating losses and research and development credits associated with the operations of other subsidiaries that are taxable for federal income tax purposes.  

Our 2019 through 2022 tax years remain open to examination by tax authorities. We have been notified by the Internal Revenue Service that lower-tier partnership income tax returns for the tax year ended December 31, 2020 have been selected for audit.