Income Taxes

12 Months Ended

Dec. 31, 2021

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:

	2021		2020		2019
Domestic	$	97,884	$	68,817	$	87,622
Foreign		2,206		5,856		2,551
Income before income taxes	$	100,090	$	74,673	$	90,173

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

	2021			2020			2019
Current:
Federal	$	15,961		$	14,645		$	14,123
State		3,494			5,198			5,698
Foreign		687			1,736			1,537
Total current		20,142			21,579			21,358
Deferred:
Federal		4,724			(1,721	)		320
State		4,395			314			(25	)
Foreign		(303	)		(458	)		(418	)
Total deferred		8,816			(1,865	)		(123	)
Income tax expense	$	28,958		$	19,714		$	21,235

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:

	2021			2020
Deferred Tax Assets
Allowance for expected credit losses	$	1,825		$	1,687
Accrued paid time off		2,504			2,423
Foreign net operating loss (NOL) carry forward		91			957
State net operating loss (NOL) carry forward		522			714
Stock option compensation		1,680			2,308
Deferred rent		2,566			3,091
Deferred compensation		5,358			4,598
Foreign tax credits		6,677			5,882
State tax credits		1,081			2,108
Foreign exchange		4,014			5,370
Foreign deferred		727			650
Accrued bonus		5,303			4,126
Accrued liabilities and other		6,660			5,701
		39,008			39,615
Less: Valuation Allowance		(7,048	)		(6,839	)
Total Deferred Tax Assets		31,960			32,776
Deferred Tax Liabilities
Retention		(637	)		(1,003	)
Prepaid expenses		(726	)		(1,089	)
Payroll taxes		(544	)		(489	)
Unbilled revenue		(607	)		(1,451	)
Depreciation		(1,920	)		(1,731	)
Amortization		(68,194	)		(60,392	)
Deferred gain and other		(1,245	)		(951	)
Total Deferred Tax Liabilities		(73,873	)		(67,106	)
Total Net Deferred Tax Liability	$	(41,913	)	$	(34,330	)

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 now generally 26.6%.   

As of December 31, 2021, the cumulative foreign tax credit carryforward balance increased by approximately $0.8 million and the valuation allowance required increased by approximately $0.8 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 $1.2 million of additional favorable outside basis differences inherent in these foreign entities as of December 31, 2021 because these amounts continue to be permanently reinvested in foreign operations.

As of December 31, 2021, the Company had approximately $0.1 million of foreign operating loss carryforward for income taxes which may be carried forward indefinitely.

As of December 31, 2021, the Company had NOL carryforwards for state income tax purposes of approximately $7.3 million, which expires in 2034. The Company acquired these NOLs as a result of its purchase of Olson 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, 2021, the Company had gross state income tax credit carryforwards of approximately $1.4 million, which expire between 2021 and 2029. A deferred tax asset of approximately $1.1 million, net of federal benefit, has been established related to these state income tax credit carryforwards as of December 31, 2021.

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 approximately $0.4 million and $1.0 million was required for tax attributes related to specified foreign jurisdictions as of December 31, 2021 and 2020, respectively, and an additional $6.7 million valuation allowance is required against our U.S. foreign tax credit carry forwards.

The total amount of unrecognized tax benefits as of December 31, 2021 and 2020 was $0.5 million and $0.8 million, respectively, which includes $0.5 million and $0.8 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, 2019	$	216
Decrease attributable to tax positions taken during a prior period		(216	)
Unrecognized tax benefits at December 31, 2019		—
Increase attributable to tax positions taken during the current 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

The Company’s policy is not to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. The Company did not have any accrued penalty and interest at December 31, 2021 and 2020.

The Company’s 2018 to 2020 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 2017 to 2020.

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:

	2021			2020			2019
Taxes at statutory rate		21.0	%		21.0	%		21.0	%
State taxes, net of federal benefit		5.6	%		5.6	%		5.3	%
Foreign tax rate differential		0.1	%		0.3	%		0.3	%
Executive compensation		2.1	%		2.4	%		0.6	%
Other permanent differences		(0.4	)%		0.1	%		0.7	%
Prior year tax adjustments		1.5	%		(1.1	)%		(1.0	)%
Unrecognized tax benefits		(0.5	)%		1.0	%		(0.2	)%
Valuation allowance		1.3	%		1.6	%		1.1	%
Equity-based compensation		(1.0	)%		(3.8	)%		(3.6	)%
Tax credits		(0.8	)%		(0.7	)%		(0.6	)%
Taxes at effective rate		28.9	%		26.4	%		23.6	%

In response to the COVID-19 pandemic, the U.S. federal, state and local governments, as well as numerous foreign governments, have enacted tax-related relief programs to provide both direct and indirect tax assistance in the form of tax subsidies, exemptions, deferrals and credits.  The Company is continuously analyzing these programs as they are introduced in order to determine its eligibility and the risks and benefits of participation.  During the year ended December 31, 2020, the Company elected to participate in several COVID-19 tax-relief programs for which it was eligible.

Pursuant to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, the Company exercised the option to defer payment of the employer portion of the Social Security tax, with 50% to be repaid by December 31, 2021 and the remainder by December 31, 2022.  The Company deferred payment of approximately $20.9 million of employer Social Security taxes during the year ended December 31, 2020 and repaid 50% during the third quarter of 2021.  As of December 31, 2021 the remaining deferred payments are included in accrued salaries and benefits in the Company’s consolidated balance sheet.