Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense was as follows:

(in thousands)	For the Year Ended December 31,
	2023		2022
Current tax expense
Federal	$	61	$	204
State	639		(89)
Total current tax expense	$	700	$	115
Deferred tax expense
Federal	$	64	$	(71)
State	136		260
Total deferred tax expense	200		189
Total tax expense	$	900	$	304

The Company made net cash payments for income taxes of $0.6 million in 2023, while it received net cash refunds for income taxes of $3.0 million in 2022.

A reconciliation between the Company’s effective tax rate on income before income taxes and the statutory tax rate is as follows: 

(in thousands)	For the Year Ended December 31,
	2023				2022
	Amount		Percent		Amount		Percent
Income tax expense at federal statutory rate	$	5,713	21.0	%	$	2,430	21.0	%
State income tax, net of federal benefit	1,486		5.5	%	140		1.2	%
Other permanent differences	22		0.1	%	88		0.7	%
Research and development tax credits	(601)		(2.2)	%	(393)		(3.4)	%
Other tax credits	277		1.0	%	(612)		(5.3)	%
Tax reserve reassessment	158		0.6	%	79		0.7	%
Change in valuation allowance	(5,366)		(19.7)	%	(497)		(4.3)	%
Return adjustment	(673)		(2.5)	%	(1,147)		(9.9)	%
Other, net	(116)		(0.5)	%	216		1.9	%
Income tax expense	$	900	3.3	%	$	304	2.6	%

For the years ended December 31, 2023 and 2022, the Company recognized pretax income of $27.2 million and $11.6 million, respectively.

The Company generates R&D tax credits as a result of its R&D activities, which reduce the Company’s effective income tax rate. In general, these credits are general business credits and may be carried forward up to 20 years to be offset against future taxable income. The income tax expense for 2023 primarily related to federal and state income taxes offset by R&D credits and a reduction in the valuation allowance against deferred tax assets.

Significant components of deferred income tax assets and liabilities consisted of the following:

(in thousands)	As of December 31,
	2023		2022
Deferred tax assets:
Net operating loss carryforwards	$	18,067	$	25,541
Capital loss carryforwards	195		194
Research and development credits	6,167		5,565
Other state credits	2,244		3,671
Inventory	2,569		2,407
Allowances and bad debts	1,646		1,195
Accrued warranty	5,165		6,048
Accrued wages and benefits	353		1,294
Other accrued expenses	6,505		5,749
Stock-based compensation	240		188
Capitalized research and development costs	8,078		4,658
163(j) disallowed interest	2,868		1,343
Contract liabilities	698		1,057
Operating lease liability	7,917		2,820
Other	804		1,685
Total deferred tax assets	63,516		63,415
Valuation allowance	(54,314)		(59,680)
Total deferred tax assets, net of valuation allowance	$	9,202	$	3,735
Deferred tax liabilities:
ROU operating lease asset	$	(7,274)	$	(2,612)
Intangible amortization	(1,006)		(110)
Depreciation on property, plant and equipment	(2,400)		(2,291)
Total deferred tax liabilities	$	(10,680)	$	(5,013)
Net deferred tax liability	$	(1,478)	$	(1,278)

The Company’s net deferred tax liability is presented as a separate line item in the Consolidated Balance Sheets.

A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The guidance on accounting for income taxes provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset.

The Company evaluated the need to maintain a valuation allowance for deferred tax assets based on an assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. As a result of this evaluation, the Company concluded that the negative evidence outweighed the positive evidence and that a full valuation allowance should be maintained against its net deferred tax assets as of December 31, 2023 and 2022. The Company’s net deferred tax liability of $1.5 million and $1.3 million as of December 31, 2023 and 2022, respectively, represents the deferred tax liability related to indefinite-lived assets which cannot serve as a source of income for the realization of deferred tax assets that are not indefinite-lived.

As of December 31, 2023, the Company has, on a tax-effected basis, $8.4 million in R&D and state tax credit carryforwards which begin to expire in 2024. The Company has $10.3 million and $7.6 million of federal and state (tax effected, net of federal tax benefit) net operating loss carryforwards, respectively, that are available to offset taxable income in the future. The state net operating loss carryforwards begin to expire in 2026. The federal net operating loss carryforwards do not expire.

The change in unrecognized tax benefits excluding interest and penalties were as follows:

(in thousands)	For the Year Ended December 31,
	2023		2022
Balance at beginning of year	$	1,660	$	1,588
Additions based on tax positions related to the current year	117		74
Additions for tax positions of prior years	43		5
Reduction for tax positions of prior years	(1)		$	(7)
Balance at end of year	$	1,819	$	1,660

The Company recognizes interest and penalties related to unrecognized tax benefits in Income tax expense. As of December 31, 2023 and 2022, the amount accrued for interest and penalties was not material. The Company reflects the liability for unrecognized tax benefits as Other noncurrent liabilities in its Consolidated Balance Sheets. The amounts included in “reductions for tax positions of prior years” represent decreases in the unrecognized tax benefits relating to expiration of the statutes during each year shown.

As of December 31, 2023, the Company believes the liability for unrecognized tax benefits, excluding interest and penalties, could decrease by an immaterial amount in 2024 due to lapses in the statute of limitations. Due to the various jurisdictions in which the Company files tax returns, it is possible that there could be other changes in the amount of unrecognized tax benefits in 2024, but the amount cannot be estimated. Unrecognized tax benefits that, if recognized, would affect the effective tax rate are not expected to be material.

With few exceptions, the major jurisdictions subject to examination by the relevant tax authorities and open tax years, stated as the Company’s fiscal years, are as follows:

Jurisdiction	Open Tax Years
U.S. Federal	2014	to	2023
U.S. States	2013	to	2023
Canada	2019	to	2020

The Company is currently under federal income tax audit for tax years 2014, 2015 and 2016. The Company is currently under Illinois income tax audit for tax years 2013, 2014, 2015 and 2016.