Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 13 - INCOME TAXES

The domestic and foreign components of income before provision for income taxes are as follows for the years ended December 31:

	2022		2021		2020
Domestic	$	80,372	$	97,884	$	68,817
Foreign		3,608		2,206		5,856
Income before income taxes	$	83,980	$	100,090	$	74,673

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

	2022			2021			2020
Current:
Federal	$	8,413		$	15,961		$	14,645
State		2,686			3,494			5,198
Foreign		1,661			687			1,736
Total current		12,760			20,142			21,579
Deferred:
Federal		4,264			4,724			(1,721	)
State		3,607			4,395			314
Foreign		(894	)		(303	)		(458	)
Total deferred		6,977			8,816			(1,865	)
Income tax expense	$	19,737		$	28,958		$	19,714

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes.

Deferred tax assets (liabilities) consisted of the following at December 31:

	2022			2021
Deferred Tax Assets
Allowance for expected credit losses	$	1,404		$	1,825
Accrued paid time off		2,801			2,504
Foreign net operating loss (NOL) carryforward		229			91
State net operating loss (NOL) carryforward		502			522
Stock option compensation		1,586			1,680
Deferred rent		4,224			2,566
Deferred compensation		4,692			5,358
Foreign tax credits		7,236			6,677
State tax credits		384			1,081
Foreign exchange		4,532			4,014
Foreign deferred		875			727
Accrued bonus		5,696			5,303
Impairment		2,650			—
Accrued liabilities and other		6,513			6,660
		43,324			39,008
Less: Valuation Allowance		(7,607	)		(7,048	)
Total Deferred Tax Assets		35,717			31,960
Deferred Tax Liabilities
Retention		(407	)		(637	)
Prepaid expenses		(366	)		(726	)
Payroll taxes		(697	)		(544	)
Unbilled revenue		(409	)		(607	)
Depreciation		(270	)		(1,920	)
Amortization		(99,045	)		(68,194	)
Deferred gain and other		(2,561	)		(1,245	)
Total Deferred Tax Liabilities		(103,755	)		(73,873	)
Total Net Deferred Tax Liability	$	(68,038	)	$	(41,913	)

The Company measures certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is 26.8%.

As of December 31, 2022, the cumulative foreign tax credit carryforward balance increased by approximately $0.6 million and the valuation allowance required increased by approximately $0.6 million. No additional income taxes have been provided for on any remaining undistributed foreign earnings not subject to the transition tax. No additional deferred income taxes have been provided for the $8.9 million of additional unfavorable outside basis differences inherent in these foreign entities as of December 31, 2022 because these amounts continue to be permanently reinvested in foreign operations.

As of December 31, 2022, the Company had approximately $0.7 million of foreign operating loss carryforward for income taxes which may be carried forward indefinitely.

As of December 31, 2022, the Company has NOL carryforwards for state income tax purposes of approximately $6.8 million, which expire in 2034. The Company acquired these NOLs as a result of its purchase of a business in November 2014. Internal Revenue Code Section 382 imposes an annual limitation on the use of a corporation’s NOLs, tax credits and other carryovers after an “ownership change” occurs. Section 382 imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change NOLs and credits. In general, the annual limitation is determined by multiplying the value of the corporation’s stock immediately before the ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Any unused portion of the annual limitation is available for use in future years until such NOLs are scheduled to expire (in general, NOLs may be carried forward 20 years). The Company established a valuation allowance of approximately $0.4 million against the portion of the deferred tax asset which it is more-likely-than-not that it will not be recoverable (e.g. expiration of the statute of limitations, etc.)

As of December 31, 2022, the Company had gross state income tax credit carryforwards of approximately $0.4 million, which expire between 2024 and 2034. A deferred tax asset of approximately $0.4 million, net of federal benefit, has been established related to these state income tax credit carryforwards as of December 31, 2022.

The need to establish valuation allowances for deferred assets is based on a more-likely-than-not threshold that the benefit of such assets will be realized in future periods. Appropriate consideration has been given to all available evidence, including historical operating results, projections of taxable income, and tax planning alternatives. The Company concluded that a valuation allowance of $0.4 million was required for tax attributes related to specified state jurisdictions and an additional $7.2 million valuation allowance is required against our U.S. foreign tax credit carryforwards.

The total amount of unrecognized tax benefits as of December 31, 2022 and 2021 was $0.1 million and $0.5 million, respectively, which includes $0.1 million and $0.5 million, respectively, of tax positions that, if recognized, would impact the effective rate.

The unrecognized tax benefit reconciliation, excluding penalty and interest, is as follows:

Unrecognized tax benefits at January 1, 2020	$	—
Increase attributable to tax positions taken during a prior period		811
Unrecognized tax benefits at December 31, 2020		811
Decrease attributable to tax positions taken during the current period		(361	)
Unrecognized tax benefits at December 31, 2021		450
Decrease attributable to tax positions taken during the current period		(305	)
Unrecognized tax benefits at December 31, 2022	$	145

The Company’s 2019 to 2021 tax years remain subject to examination by the Internal Revenue Service for federal tax purposes. Certain significant state and foreign tax jurisdictions are also either currently under examination or remain open under the statutes of limitation and subject to examination for the tax years from 2019 to 2021.

Although the Company believes it has adequately provided for all uncertain tax positions, amounts asserted by taxing authorities could be greater than the Company’s accrued position. Accordingly, additional provisions on federal, state and foreign income tax related matters could be recorded in the future as revised estimates are made or the underlying matters are effectively settled or otherwise resolved. Conversely, the Company could settle positions with the tax authorities for amounts lower than have been accrued. The Company believes it is reasonably possible that, during the next 12 months, the Company’s liability for uncertain tax positions may not change.

The Company’s provision for income taxes differs from the federal statutory rate. The differences between the statutory rate and the Company’s provision are as follows:

	2022			2021			2020
Taxes at statutory rate		21.0	%		21.0	%		21.0	%
State taxes, net of federal benefit		5.8	%		5.6	%		5.6	%
Foreign tax rate differential		0.1	%		0.1	%		0.3	%
Executive compensation		2.2	%		2.1	%		2.4	%
Other permanent differences		2.0	%		(0.4	)%		0.1	%
Prior year tax adjustments		(1.1	)%		1.5	%		(1.1	)%
Deferred Impact of State Rate Change		0.6	%		—			—
Worthless stock deduction		(4.6	)%		—			—
Unrecognized tax benefits		(0.4	)%		(0.5	)%		1.0	%
Valuation allowance		0.7	%		1.3	%		1.6	%
Equity-based compensation		(1.3	)%		(1.0	)%		(3.8	)%
Tax credits		(1.5	)%		(0.8	)%		(0.7	)%
Taxes at effective rate		23.5	%		28.9	%		26.4	%