Income Taxes

12 Months Ended

Dec. 31, 2022

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 and discrete items.

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 year ended December 31:

(in thousands)	2022			2021		2020
Current	$	70,669		$	85,131	$	41,733
Deferred		(5,302	)		25		(14,610	)
Net operating loss carryforwards		45			—		—
Income taxes	$	65,412		$	85,156	$	27,123

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 year ended December 31:

(in thousands, except effective tax rate)	2022			2021			2020
U.S. federal statutory income tax	$	83,855		$	106,893		$	40,730
REIT income not subject to federal income tax		(27,085	)		(34,332	)		(16,949	)
Change in valuation allowance		—			—			(395	)
State income taxes, net of federal tax benefit		9,478			13,314			3,099
Other items, net		(836	)		(719	)		638
Income taxes	$	65,412		$	85,156		$	27,123
Effective tax rate		16.4	%		16.7	%		14.0	%

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

(in thousands)	2022			2021
Deferred tax assets:
Pension and other postretirement employee benefits	$	20,992		$	22,610
Inventories		753			387
Nondeductible accruals		2,559			1,634
Incentive compensation		1,910			1,437
Employee benefits		1,477			1,444
Other		706			598
Total deferred tax assets		28,397			28,110
Deferred tax liabilities:
Timber and timberlands, net		(1,852	)		(226	)
Property, plant and equipment, net		(58,464	)		(53,800	)
Intangible assets, net		(4,037	)		(3,466	)
Real estate development		(1,628	)		(2,476	)
Other		(4,206	)		(3,016	)
Total deferred tax liabilities		(70,187	)		(62,984	)
Deferred tax liabilities, net	$	(41,790	)	$	(34,874	)

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, 2022, we had federal net operating loss carryforwards of $8.0 million that expire from 2035 to 2037, state net operating loss carryforwards of $3.2 million that expire from 2028 to 2037. These net operating loss carryforwards were acquired in the CatchMark merger, have been reduced for Section 382 limitations under the Internal Revenue Code and are netted against corresponding uncertain tax position liabilities.

In conjunction with the CatchMark merger, we recorded uncertain tax position liabilities plus any applicable accrued interest, related to the treatment of certain intercompany transactions between CatchMark's REIT and its taxable REIT subsidiary. These liabilities are included in Other Long-Term Obligations and Deferred Tax Liabilities, net in our Consolidated Balance Sheets. At December 31, 2022, we had $8.3 million of unrecognized tax benefits, all of which, if recognized, would affect the annual effective tax rate. See Note 17: Mergers for additional information. We had no unrecognized tax benefits at December 31, 2021.

The following is a reconciliation of the beginning and ending unrecognized tax benefits for the year ended December 31, 2022:

(in thousands)
Balance at January 1	$	—
Additions for tax positions related to the current year		171
Additions for tax positions of prior years		8,810
Lapse of statutes of limitations		(675	)
Balance at December 31	$	8,306

During the year ended December 31, 2022, we reduced our uncertain tax positions due to the lapse of the statute of limitations by $0.7 million. Accrued interest associated with the $8.3 million unrecognized tax benefit as of December 31, 2022, totals approximately $0.5 million. We are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.

We reflect accrued interest related to tax obligations, as well as penalties, in our provision for income taxes. For the years ended December 31, 2022, 2021 and 2020, we recognized insignificant amounts related to interest and penalties in our tax provision. At December 31, 2022, 2021 and 2020, 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	2019 - 2022
Arkansas	2019 - 2022
Idaho	2019 - 2022
Michigan	2018 - 2022
Minnesota	2018 - 2022
Georgia	2019 - 2022