Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We elected on our initial U.S. federal income tax return to be treated as a REIT under the Code. To qualify as a REIT, we must distribute at least 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and excluding any capital gains, to shareholders, and meet certain organizational and operational requirements, including asset holding requirements. As a REIT, we will generally not be subject to U.S. federal income tax on income that we distribute as dividends to our shareholders. If we fail to qualify as a REIT in any taxable year unless certain relief provisions apply, we will be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and we could not deduct dividends paid to our shareholders in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to shareholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from reelecting to be taxed as a REIT for the four taxable years following the year in which we failed to qualify as a REIT.

We are subject to the statutory requirements of the locations in which we conduct business, and state and local income taxes are accrued as deemed required in the best judgment of management based on analysis and interpretation of respective tax laws.

We have elected to treat the subsidiaries through which we operate Uniti Fiber and certain subsidiaries of Uniti Leasing as TRSs. TRSs enable us to engage in activities that result in income that does not constitute qualifying income for a REIT. Our TRSs are subject to U.S. federal, state and local corporate income taxes.

Income tax expense (benefit) for the years ended December 31, 2023, 2022 and 2021 as reported in the accompanying Consolidated Statements of (Loss) Income was comprised of the following:

	Year Ended December 31,
(Thousands)	2023		2022		2021
Current
Federal	$	(753)	$	8,782	$	(71)
State	776		2,762		1,622
Total current expense	23		11,544		1,551
Deferred
Federal	(53,188)		(22,804)		(5,066)
State	(15,309)		(6,105)		(1,401)
Total deferred benefit	(68,497)		(28,909)		(6,467)
Total income tax benefit	$	(68,474)	$	(17,365)	$	(4,916)

An income tax expense reconciliation between the U.S. statutory tax rate and the effective tax rate is as follows:

	Year Ended December 31,
(Thousands)	2023		2022		2021
Income (loss) from continuing operations, before tax	$	(150,223)	$	(25,487)	$	119,844
Income tax expense (benefit) at U.S. statutory federal rate	(31,547)		(5,352)		25,167
Increases (decreases) resulting from:
State taxes, net of federal benefit	(11,219)		(2,255)		288
Benefit of REIT status	(24,796)		(46,604)		(30,565)
Impairment of nondeductible goodwill	—		36,895		—
Return to accrual	(1,298)		(44)		193
Permanent differences	386		(5)		1
Income tax benefit	$	(68,474)	$	(17,365)	$	(4,916)

The effective tax rate on income from continuing operations differs from tax at the statutory rate primarily due to our status as a REIT, and goodwill impairment which is not fully deductible for tax purposes in all years presented.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

The components of the Company's deferred tax assets and liabilities are as follows:

(Thousands)	December 31, 2023		December 31, 2022
Deferred tax assets:
Deferred revenue	$	31,123	$	30,616
Stock-based compensation	629		528
Asset retirement obligation	1,511		2,213
Inventory reserve	133		140
Excess business interest expense	24,090		14,037
Lease asset liability	12,715		14,325
Settlement obligation	605		680
Debt discount and interest expense	841		2,593
Other intangible amortization	27,494		—
Other	4,560		3,035
Net operating loss carryforwards	156,482		143,733
Deferred tax assets	$	260,183	$	211,900
Deferred tax liabilities:
Property, plant and equipment	$	(97,459)	$	(94,889)
Customer list intangible	(37,159)		(39,125)
Other intangible amortization	—		(18,320)
Right of use asset	(12,489)		(15,384)
Deferred or prepaid costs	(3,792)		(3,533)
Other	(156)		(18)
Deferred tax liabilities	$	(151,055)	$	(171,269)
Deferred tax asset, net	$	109,128	$	40,631

As of December 31, 2023, the Company’s deferred tax assets were primarily the result of U.S. federal and state NOL carryforwards.

As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. Management has evaluated sources of future taxable income, including the Company’s significant deferred tax liabilities and available tax planning strategies, and determined that sufficient positive evidence exists as of December 31, 2023, to conclude that it is more likely than not that all of its deferred tax assets are realizable, and therefore, no valuation allowance has been recorded.

We have total federal NOL carryforwards as of December 31, 2023 of approximately $164.4 million which will expire between 2030 and 2037, and approximately $391.3 million which will not expire but the utilization of which will be limited to 80% of taxable income annually under provisions enacted in the Tax Cut and Jobs Act.

With the exception of Tower Cloud, Inc., whose outstanding equity we acquired 100% of in August 2016, and Uniti Fiber Holdings Inc., our 2020 returns remain open to examination. As Tower Cloud, Inc. and Uniti Fiber Holdings Inc. have NOLs available to carry forward, the applicable tax years will generally remain open to examination several years after the applicable loss carryforwards have been utilized or expire.

The Company or its subsidiaries file tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and certain foreign jurisdictions. A reconciliation of the Company’s beginning and ending liability for unrecognized tax benefits is as follows:

(Thousands)	2023		2022
Balance at January 1	$	1,734	$	1,734
Balance at December 31	$	1,734	$	1,734

The Company’s entire liability for unrecognized tax benefit would affect the annual effective tax rate if recognized.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as additional tax expense. The Company recorded no interest expense and penalties for the period ending December 31, 2023. The Company’s balance of accrued interest and penalties related to unrecognized tax benefits as of December 31, 2023 was $1.3 million.