Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required. In assessing the realizability of deferred tax assets, the Company considers both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company had a valuation allowance of $0.1 million against its deferred tax assets related to certain state tax jurisdictions as of March 31, 2020 and December 31, 2019. To the extent the Company generates future tax net operating losses, the Company may be required to increase the valuation allowance on deferred tax assets, which may unfavorably impact the effective tax rate.

The Company has no material uncertain tax positions as of March 31, 2020 and December 31, 2019.

For the three months ended March 31, 2020, the Company’s effective tax rate was 25.3%, which varied from the federal statutory rate of 21% primarily due to state income taxes and nondeductible compensation expense. For the three months ended March 31, 2019, the Company’s effective tax rate was 22.8%, which varied from the federal statutory rate of 21% primarily due to state income taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides numerous tax provision and other stimulus measures. The Company expects to benefit from the technical correction related to qualified leasehold improvements, which provides for tax bonus depreciation. If the Company generates a net operating loss (“NOL”) in 2020, it would also expect to benefit from the five-year NOL carryback provisions included in the CARES Act. To the extent that states in which the Company operates provide for similar stimulus measures, the Company will evaluate potential benefits at the state-level as well. For the three months ended March 31, 2020, the Company recognized an increase in income taxes receivable of $2.0 million and a corresponding increase in its deferred income taxes related to increased bonus depreciation on qualified improvement property allowable under the CARES Act.