Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

12. Income Taxes

The provision for income tax expense (benefit) consists of the following:

	Year ended December 31
	2019		2018		2017
Current:
Federal	$	12,492	$	3,953	$	11,897
State		3,067		1,736		988
		15,559		5,689		12,885
Deferred:
Federal		(1,442)		5,001		(17,264)
State		(666)		1,164		1,970
		(2,108)		6,165		(15,294)
	$	13,451	$	11,854	$	(2,409)

A reconciliation of income tax expense computed at the federal statutory rate to the provision for income taxes for the years ended December 31, 2019, 2018 and 2017 is as follows:

	2019		2018		2017
Federal income tax expense at statutory rate	$	13,150	$	11,709	$	18,520
State taxes, net of federal benefit		2,239		2,349		1,539
Change in uncertain tax positions, net		(601)		(1,292)		1,043
Research and development credit		(404)		(226)		(160)
State rate change		(426)		287		240
Manufacturing tax benefits		-		-		(933)
Federal deferred rate change		-		(836)		(22,452)
Other		(507)		(137)		(206)
	$	13,451	$	11,854	$	(2,409)

Significant components of the Company’s deferred tax liabilities and assets are as follows:

	December 31,
	2019		2018
Deferred tax assets:
Allowance for doubtful accounts	$	382	$	212
Inventory reserves		1,388		1,353
Warranty liability		1,643		1,559
Deferred compensation		1,380		1,264
Earnout liabilities		406		516
Pension and retiree health benefit obligations		1,682		1,219
Interest rate swap		1,733		-
Accrued vacation		833		702
Medical claims reserve		56		78
Operating lease liabilities		6,108		-
Net operating losses		3,754		4,416
Other accrued liabilities		2,953		2,176
Valuation allowance		(1,612)		(1,473)
Total deferred tax assets		20,706		12,022
Deferred tax liabilities:
Tax deductible goodwill and other intangibles		(54,808)		(53,565)
Accelerated depreciation		(7,320)		(6,547)
Operating leases - right of use assets		(6,108)		-
Other		319		(108)
Total deferred tax liabilities		(67,917)		(60,220)
Net deferred tax liabilities	$	(47,211)	$	(48,198)

Deferred income tax balances reflect the effects of temporary differences between the carrying amount of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.

State operating loss carry forwards for tax purposes will result in future tax benefits of approximately $2,919. These loss carry-forwards will begin to expire in 2021. The Company evaluated the need to maintain a valuation allowance against certain deferred tax assets. Based on this evaluation, which included a review of recent profitability, future projections of profitability, and future deferred tax liabilities, the Company concluded that a valuation allowance of approximately $1,612 is necessary at December 31, 2019 for the state net operating loss carry-forwards which are likely to expire prior to the Company's ability to use the tax benefit.

A reconciliation of the beginning and ending liability for uncertain tax positions is as follows:

	2019		2018		2017
Balance at beginning of year	$	1,795	$	3,531	$	2,361
Increases for tax positions taken in the current year		131		21		97
Increases for tax positions taken in the prior years		15		146		1,602
Decreases due to settlements with taxing authorities		-		(693)		(8)
Decreases due to lapses in the statute of limitations		(722)		(1,210)		(521)
Balance at the end of year	$	1,219	$	1,795	$	3,531

The amount of the unrecognized tax benefits that would affect the effective tax rate, if recognized, was approximately $1,219 at December 31, 2019. The Company recognizes interest and penalties related to the unrecognized tax benefits in income tax expense. Approximately $487 and $502 of accrued interest and penalties is reported as an income tax liability at December 31, 2019 and 2018, respectively. The liability for unrecognized tax benefits is reported in Other Long-term Liabilities on the consolidated balance sheets at December 31, 2019 and 2018.

The Company files income tax returns in the United States (federal) and various states. Tax years open to examination by tax authorities under the statute of limitations include 2016, 2017 and 2018 for Federal and 2015 through 2018 for most states. Tax returns for the 2019 tax year have not yet been filed.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“The Act”). Over the long term, the Company generally expects to benefit from the lower statutory rates provided by The Act. The Company operates solely in the United States; therefore, the international provisions of The Act do not apply. The only material item that impacted the Company in 2017 is the reduction in the deferred tax rate. As a result of the reduction in the U.S. corporate income tax rate from 35.0 percent to 21.0 percent under The Act, the Company recorded a reduction to its net deferred tax liability of $22,452, and a corresponding decrease to income tax expense in the Company’s Consolidated Statement of Operations for the year ended December 31, 2017.