Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 14. INCOME TAXES

As a REIT, we generally are not subject to federal and state corporate income taxes on income from investments in real estate that we distribute to our shareholders. We conduct certain activities through our PotlatchDeltic TRS which are subject to corporate level federal and state income taxes. These activities are principally comprised of our wood products manufacturing operations and certain real estate investments. Therefore, income tax expense or benefit is primarily due to income or loss of the PotlatchDeltic TRS, as well as permanent book versus tax differences.

We are also subject to corporate taxes on built-in gains (the excess of fair market value over tax basis on the merger date) on sales of former Deltic real property held by the REIT during the five years following the Deltic merger (until February 2023). The sale of standing timber is not subject to built-in gains tax.

Income tax expense consists of the following for the years ended December 31:

(in thousands)	2021		2020			2019
Current	$	85,131	$	41,733		$	12,055
Deferred		25		(14,610	)		(11,082	)
Net operating loss carryforwards		—		—			37
Income taxes	$	85,156	$	27,123		$	1,010

Income tax expense differs from the amount computed by applying the statutory federal income tax rate of 21% to income before income taxes due to the following for the years ended December 31:

(in thousands, except effective tax rate)	2021			2020			2019
U.S. federal statutory income tax	$	106,893		$	40,730		$	11,901
REIT income not subject to federal income tax		(34,332	)		(16,949	)		(11,285	)
Change in valuation allowance		—			(395	)		(395	)
State income taxes, net of federal tax benefit		13,314			3,099			334
Other items, net		(719	)		638			455
Income taxes	$	85,156		$	27,123		$	1,010
Effective tax rate		16.7	%		14.0	%		1.8	%

The tax effects of significant temporary differences creating deferred tax assets and liabilities at December 31 were:

(in thousands)	2021			2020
Deferred tax assets:
Pension and other postretirement employee benefits	$	22,610		$	34,703
Inventories		387			552
Tax credits		—			1,519
Nondeductible accruals		1,634			2,005
Incentive compensation		1,437			971
Employee benefits		1,444			1,323
Other		598			1,110
Total deferred tax assets		28,110			42,183
Deferred tax liabilities:
Timber and timberlands, net		(226	)		(354	)
Property, plant and equipment, net		(53,800	)		(52,698	)
Intangible assets, net		(3,466	)		(3,656	)
Real estate development		(2,476	)		(1,236	)
Other		(3,016	)		(1,979	)
Total deferred tax liabilities		(62,984	)		(59,923	)
Deferred tax liabilities, net	$	(34,874	)	$	(17,740	)

We believe it is more likely than not that we will have sufficient future taxable income to realize our deferred tax assets. At December 31, 2021, we had no state or federal net operating loss carryforwards and at December 31, 2021 and 2020, we had no material unrecognized tax benefits.

We reflect accrued interest related to tax obligations, as well as penalties, in our provision for income taxes. For the years ended December 31, 2021, 2020 and 2019, we recognized insignificant amounts related to interest and penalties in our tax provision. At December 31, 2021, 2020 and 2019, we had insignificant amounts of accrued interest related to tax obligations and no accrued interest receivable with respect to open tax refunds.

The following table summarizes the tax years subject to examination by major taxing jurisdictions:

Jurisdiction	Years
Federal	2018 - 2021
Arkansas	2018 - 2021
Idaho	2018 - 2021
Michigan	2017 - 2021
Minnesota	2017 - 2021