Income Taxes

9 Months Ended

Sep. 30, 2022

Income Taxes

Income Taxes

Note 10—Income Taxes

We are subject to tax liabilities imposed by multiple jurisdictions. We determine our best estimate of the annual effective tax rate at each interim period using expected annual pre-tax earnings, statutory tax rates and available tax planning opportunities. Certain significant or unusual items are separately recognized in the quarter in which they occur which can cause variability in the effective tax rate from quarter to quarter. We recognize interest and penalties related to uncertain tax positions, if any, as an income tax expense.

The effective tax rate on income for the nine months ended September 30, 2022, and 2021 is 19.6% and 27.5%, respectively. For the first nine months of 2022, our tax rate differs from the U.S. federal statutory rate of 21.0% primarily due to the impact of state income taxes and the release of valuation allowances during the second and third quarters. For the first nine months of 2021, our tax rate differs from the U.S. federal statutory rate of 21.0% primarily due to the impact of state income taxes and nondeductible components of per diem expenses.

As of each reporting date, management considers new evidence, both positive and negative, that could affect our view of the future realization of all deferred tax assets. As of December 31, 2021, we had not recognized the $9.8 million tax benefit of our 2018 U.S. capital losses, because we determined that it was more likely than not that the capital losses would expire before they were able to be used to offset future U.S. capital gains. Due to capital gains on the sale of California properties as of September 2022, we have released a portion of the valuation allowance and recognized a 5.5% decrease in our forecasted 2022 annual effective tax rate.

Our U.S. federal income tax returns are generally no longer subject to examination for tax years before 2018. The statutes of limitation of state and foreign jurisdictions generally vary between 3 to 5 years. Accordingly, our state and foreign income tax returns are generally no longer subject to examination for tax years before 2016.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting bases and tax bases of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based upon consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income, the length of the tax asset carryforward periods and tax planning strategies. The effects of remeasurement of deferred tax assets and liabilities resulting from changes in tax rates are recognized in income in the period of enactment.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the US Government in response to the COVID-19 pandemic. We deferred FICA tax payments through the end of 2020 as

allowed under the CARES Act. The remaining deferral balance was $21.7 million at September 30, 2022, and is included in Accrued liabilities on our Condensed Consolidated Balance Sheets. The deferral amount is due to the U.S. Treasury on January 3, 2023.