Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

12. Income Taxes

“Income (loss) before provision for income taxes” as shown in the accompanying Consolidated Statements of Income (Loss) is comprised of the following (in thousands):

	Year Ended December 31,
	2023		2022		2021
Domestic	$	(82,690)	$	(25,443)	$	(53,152)
Foreign		41,151		43,571		30,991
Total	$	(41,539)	$	18,128	$	(22,161)

Components of the “Provision for income taxes” in the accompanying Consolidated Statements of Income (Loss) consist of the following (in thousands):

	Year Ended December 31,
	2023		2022		2021
Current
Federal	$	1,748	$	696	$	798
Foreign		5,248		6,856		3,556
State and local		564		2		633
Total current expense		7,560		7,554		4,987
Deferred expense
Federal		39,634		1,039		(840)
Foreign		573		(1,522)		(752)
State and local		9,180		300		(936)
Total deferred expense		49,387		(183)		(2,528)
Provision for income taxes	$	56,947	$	7,371	$	2,459

A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:

	Year Ended December 31,
	2023			2022			2021
U.S. statutory tax rate		21.0	%		21.0	%		21.0	%
State and local taxes, net of federal benefit		3.7			2.7			3.1
Income attributable to non-controlling interests (a)		(16.3)			(9.3)			(9.3)
Subtotal		8.4	%		14.4	%		14.8	%
Non-creditable foreign and domestic taxes - non-controlling interest (b)(c)		(4.6)			14.0			(7.0)
Non-creditable foreign taxes - RE/MAX Holdings (c)(d)		(0.5)			8.1			(3.7)
Foreign derived intangible income deduction (c)		—			—			4.4
Other permanent differences		(3.4)			4.3			(1.2)
Uncertain tax positions		2.4			—			6.1
Loss on contract settlement (e)		—			—			(26.7)
Adjustments to state taxes (f)		—			—			3.9
162(m) compensation limitation		—			1.1			(1.8)
Valuation Allowance		(153.1)			—			—
Effect of permanent difference - reduction in TRA liability		15.0			—			—
Other		(1.3)			(1.2)			0.1
		(137.1)	%		40.7	%		(11.1)	%

(a) Given the majority of the Company’s income is generated via a pass-through entity of which the non-controlling interest owns approximately 40%, that proportion of the Company’s income is not subject to U.S. or state income tax rates.

(b) Approximately 40% of foreign taxes paid at the RMCO level and corporate subsidiary taxes are attributable to the non-controlling interest. As a result, these taxes are not creditable against the U.S. taxes of Holdings.

(c) The percentage impact of these items in 2023 and 2021 switched directionally because the Company’s pre-tax net income changed from positive to negative.

(d) While a portion of foreign taxes are creditable within the U.S. since Canada’s tax rate is higher than the U.S. statutory rate a portion of the tax paid will not be creditable.

(e) Loss on contract settlement is a result of the acquisition of INTEGRA and is not recognized for US income tax purposes.

(f) As a result of the acquisition of INTEGRA, the state filing footprint of RE/MAX has changed which has modified the blended state rate and resulted in a small remeasurement of net deferred tax assets in 2021.

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the accompanying Consolidated Balance Sheets.

These temporary differences result in taxable or deductible amounts in future years. Details of the Company’s deferred tax assets and liabilities are summarized as follows (in thousands):

	As of December 31,
	2023		2022
Long-term deferred tax assets
Goodwill, other intangibles and other assets	$	33,897	$	36,027
Settlement charge		4,011		—
Imputed interest deduction pursuant to tax receivable agreements		2,175		1,960
Operating lease liabilities		5,554		6,559
Compensation and benefits		4,414		4,703
Allowance for doubtful accounts		1,401		1,272
Contingent consideration liability		396		651
Deferred revenue		3,952		3,885
Foreign tax credit carryforward		11,358		9,077
Net operating loss carryforward		2,980		83
163j business interest limitation carryforward		5,536		479
Other		2,161		1,387
Total long-term deferred tax assets		77,835		66,083
Valuation allowance (a)		(72,849)		(9,071)
Total long-term deferred tax assets, net of valuation allowance		4,986		57,012
Long-term deferred tax liabilities
Property and equipment and other long lived assets		(27)		(281)
Goodwill, other intangibles and other assets		(12,543)		(13,768)
Operating lease assets		(3,109)		(3,831)
Other		(104)		(804)
Total long-term deferred tax liabilities		(15,783)		(18,684)
Net deferred tax assets and liabilities	$	(10,797)	$	38,328

(a) In 2023, a full valuation allowance was recorded against the Company’s remaining deferred tax assets as a result of a combined three-year cumulative loss primarily due to the settlement of the industry class-action lawsuits.

As of December 31, 2023, the Company had $11.4 million in unutilized foreign tax credit carryforwards. If unused, the carryforwards will begin to expire during the years 2027-2033. This amount has a full valuation allowance booked against it as of December 31, 2023.

Net deferred tax assets are recorded related to differences between the financial reporting basis and the tax basis of Holdings’ proportionate share of the net assets of RMCO. Based on the Company’s historical taxable income and its expected future earnings, management evaluates the uncertainty associated with booking tax benefits and determines whether the deferred tax assets are more likely than not to be realized, including evaluation of deferred tax liabilities and the expectation of future taxable income. If not expected to be realized, a valuation allowance is recognized to offset the deferred tax asset.

As of December 31, 2023, the Company did not provide for deferred taxes on unremitted earnings of certain foreign subsidiaries that are indefinitely reinvested, for which withholding taxes would be due upon repatriation. Deferred taxes have not been provided on these earnings, as the Company does not plan to initiate any action that would require the payment of tax. The estimated amount of additional tax that would be payable on this income if distributed would be immaterial.

The Company and its subsidiaries file, or will file, income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With respect to state and local jurisdictions and countries outside of the U.S., the Company and its subsidiaries are typically subject to examination for three to four years after the income tax returns have been filed. As such, income tax returns filed since 2019 are subject to examination.

Uncertain Tax Positions

During 2022 and in connection with the INTEGRA acquisition, the Company assumed an uncertain tax position related to certain U.S. tax matters and also recorded a largely offsetting related indemnification asset.

In both 2022 and 2023, a portion of the uncertain tax position and related indemnification asset assumed in connection with the INTEGRA acquisition were reversed as a result of lapse of applicable statute of limitations.

Uncertain tax position liabilities represent the aggregate tax effect of differences between the tax return positions and the amounts otherwise recognized in the consolidated financial statements and are recognized in “Income taxes payable” in the Consolidated Balance Sheets. A reconciliation of the beginning and ending amount, excluding interest and penalties is as follows:

	As of December 31,
	2023		2022
Balance, January 1	$	1,014	$	1,587
Decrease related to prior year tax positions		(756)		(882)
Increase related to tax positions from acquired companies		—		309
Balance, December 31	$	258	$	1,014

(a) Excludes accrued interest and penalties of $0.1 million and $0.3 million for the years ended December 31, 2023 and 2022, respectively. These related interest and penalties are recognized in “Income taxes payable” within the Consolidated Balance Sheets.

A portion of the Company’s uncertain tax positions have a reasonable possibility of being settled within the next 12 months.