Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 14: Income Taxes

The income tax expense (benefit) consisted of the following components for the years ended December 31 (in millions):

	2022			2021		2020
Current tax expense:
Federal	$	294.1		$	219.1	$	281.4
State		81.2			38.3		56.8
		375.3			257.4		338.2
Deferred tax expense (benefit):
Federal		(83.7	)		2.1		(32.8	)
State		(18.0	)		3.4		(8.9	)
		(101.7	)		5.5		(41.7	)
Income tax expense	$	273.6		$	262.9	$	296.5

The following is a reconciliation of the federal statutory income tax rate to income tax expense for the years ended December 31 (in millions):

	2022			2021			2020
Federal income tax at the statutory rate	$	255.7		$	229.6		$	231.9
State and local taxes, net of federal benefit		46.6			43.3			43.1
Nondeductible compensation		8.4			6.2			6.3
Nondeductible meals and entertainment		2.1			1.7			1.5
Excess tax benefit on stock-based compensation		(26.6	)		(19.6	)		(2.9	)
Disposition of nondeductible goodwill		-			-			8.3
Change in beginning of year valuation allowance		(4.1	)		18.9			5.3
Uncertain tax positions		(4.0	)		(11.9	)		1.2
Bargain purchase gain		(11.7	)		-			-
Minority interest		5.0			-			-
Other		2.2			(5.3	)		1.8
Income tax expense	$	273.6		$	262.9		$	296.5

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. The Act reduced the federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. Although the federal corporate income tax rate reduction is only effective for tax periods beginning after December 31, 2017, ASC 740 requires the Company to remeasure the existing net deferred tax liability in the period of enactment. The Act also provides for immediate expensing of 100% of the costs of qualified property that are incurred and placed in service during the period from September 27, 2017 to December 31, 2022. Beginning January 1, 2023, the immediate expensing provision is phased down by 20% per year until it is completely phased out as of January 1, 2027. Additionally, effective January 1, 2018, the Act modifies the executive compensation deduction limitation and imposes possible limitations on the deductibility of interest expense. As a result of these provisions of the Act, the Company’s deduction related to executive compensation and interest expense could be limited in future years.

The components of the net deferred tax asset (liability) were as follows, as of December 31 (in millions):

	2022			2021
Deferred tax assets:
Net operating loss carryforwards	$	44.6		$	50.3
Compensation		7.1			10.3
Rent		69.9			71.7
Pension		62.5			35.9
Other		53.5			30.6
Total deferred tax assets		237.6			198.8
Valuation allowance for deferred tax assets		(38.2	)		(42.3	)
Total deferred tax assets		199.4			156.5
Deferred tax liabilities:
Property and equipment		(187.5	)		(240.9	)
Other intangible assets		(472.8	)		(485.7	)
Goodwill		(133.4	)		(119.0	)
FCC licenses		(655.8	)		(668.6	)
Rent		(72.1	)		(76.5	)
Deferred gain on spectrum		(37.3	)		(37.3	)
Investments		(202.1	)		(210.5	)
Other		(44.0	)		(46.5	)
Total deferred tax liabilities		(1,805.0	)		(1,885.0	)
Net deferred tax liabilities	$	(1,605.6	)	$	(1,728.5	)

As of December 31, 2022, the Company’s reserve for uncertain tax positions totaled approximately $28.0 million. For the years ended December 31, 2022, 2021 and 2020 there were $28.0 million, $32.8 million and $45.6 million of gross unrecognized tax benefits, respectively, that would reduce the effective tax rate if the underlying tax positions were sustained or settled favorably. The Company has not recorded any tax reserves related to the Chicago Cubs Transactions as further described in Note 16.

A reconciliation of the beginning and ending balances of the gross liability for uncertain tax positions is as follows (in millions):

	2022			2021			2020
Uncertain tax position liability at the beginning of the year	$	32.8		$	45.6		$	45.2
Increases resulting from merger transaction		-			-			2.0
Increases related to tax positions taken during the current period		-			0.3			0.1
Increases related to tax positions taken during prior periods		-			-			0.5
Decreases related to settlements with taxing authorities		(1.7	)		(7.0	)		(1.4	)
Decreases related to expiration of statute of limitations		(3.1	)		(6.1	)		(0.8	)
Uncertain tax position liability at the end of the year	$	28.0		$	32.8		$	45.6

The Company’s liability for unrecognized tax benefits totaled $28.0 million and $32.8 million at December 31, 2022 and 2021, respectively. If all of the unrecognized tax benefits at those dates had been recognized, there would have been a favorable $28.0 million and $32.8 million impact on the Company’s reported income tax expense in 2022 and 2021, respectively.

As allowed by ASC Topic 740, the Company recognizes accrued interest and penalties related to uncertain tax positions in income tax expense in the accompanying Consolidated Statements of Operations and Comprehensive Income. The Company’s accrued interest and penalties related to uncertain tax positions were $6.9 million, $6.1 million and $7.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Although management believes its estimates and judgments are reasonable, the resolutions of the Company’s tax issues are unpredictable and could result in tax liabilities that are significantly higher or lower than those which have been provided by the Company. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $5.7 million within the next twelve months due to the resolution of tax examination issues and statute of limitations expirations.

There can be no assurance that the outcomes from any tax examinations will not have a significant impact on the amount of such liabilities, which could have an impact on the operating results or financial position of the Company.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Tribune acquired entities are currently undergoing federal audits for tax periods including 2014–2015 and 2018–2019. Protective claims for refund have been filed for 2013, 2016 and 2017 to keep the periods open for specific issues relating to the potential Cubs resolution. Nexstar is subject to U.S. federal tax examinations for years after 2018. The Company currently has various state income tax returns in the process of examination or administrative appeal. Additionally, any NOLs that were generated in prior years and utilized in the current year or future years may also be subject to examination by the Internal Revenue Service. Generally, the Company is subject to state tax examination for years after 2017 and any NOLs that were generated in prior years and utilized in the current year or future years may also be subject to examination.

The Company has gross federal and state income tax NOL carryforwards of $165.7 million and $153.7 million, respectively, which are available to reduce future taxable income if utilized before their expiration. A valuation allowance has been recorded against $134.3 million of federal NOLs and $71.7 million of state NOLs attributable to one of the consolidated VIEs. The federal NOLs expire through 2037 if not utilized. Federal NOLs generated after 2017 carry forward indefinitely. State NOLs will expire through 2041 if not utilized. Section 382 of the Internal Revenue Code of 1986, as amended, generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership. Ownership changes are evaluated as they occur and could limit the ability to use NOLs. As of December 31, 2022, the Company does not expect any NOLs to expire as a result of Section 382 limitations.

The ability to use NOLs is also dependent upon the Company’s ability to generate taxable income. The NOLs could expire before the Company generates sufficient taxable income. To the extent the Company’s use of NOLs is significantly limited, the Company’s income could be subject to corporate income tax earlier than it would if it were able to use NOLs, which could have a negative effect on the Company’s financial results and operations.