Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

11. Income Taxes

Income tax expense and effective income tax rates consist of the following:

	December 31,
	2022			2021
Current taxes:
Domestic	$	11,047		$	10,038
Foreign		5			(1)
		11,052			10,037
Deferred taxes:
Domestic		1,554			(2,154)
Foreign		1			(2)
		1,555			(2,156)
Income tax expense	$	12,607		$	7,881
Income before income taxes:
Domestic income	$	49,108		$	23,761
Foreign income		39			61
Total	$	49,147		$	23,822
Effective income tax rate		25.7	%		33.1	%

The Company’s effective tax rates on pre-tax income were 25.7% and 33.1% for the years ended December 31, 2022 and 2021, respectively. The decrease in the Company’s effective tax rate for the year ended December 31, 2022 compared to the prior year was primarily due to a decrease in unrecognized tax benefits due to the lapse of statute of limitations and favorable settlements paid to state tax authorities.

For the years ended December 31, 2022 and 2021, the effective tax rate differs from the U.S. federal statutory income tax rate as follows:

	December 31,
	2022		2021
Tax at federal statutory rate	21.0	%	21.0	%
State taxes, net	5.4		7.4
Unrecognized tax benefits	(2.0)		1.4
Tax credits	(0.1)		(0.2)
Permanent items	1.0		2.4
Other	0.4		1.1
Effective income tax rate	25.7	%	33.1	%

For the year ended December 31, 2022 the effective tax rate differs from the federal statutory rate primarily due to state income taxes, which had a tax rate impact of 5.4%. Other items impacting the effective tax rate in 2022 include unrecognized tax benefits and permanent items.

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

	December 31,
	2022		2021
Deferred tax assets:
Accrued expense	$	3,830	$	3,664
Net operating loss carryforward		257		305
Stock compensation		1,303		894
Interest limitation		2,474		3,693
Lease liability		2,891		3,222
Capital loss carryover		2,135		2,076
Research and development costs		1,434		—
Other		3,609		2,867
Total gross deferred tax assets		17,933		16,721
Valuation allowance		(2,791)		(2,832)
Net deferred tax assets		15,142		13,889
Deferred tax liabilities:
Plant, equipment and leasehold improvements		(9,510)		(5,773)
Intangible assets		(8,020)		(8,284)
Right-of-use assets		(2,749)		(3,098)
Other		(1,671)		(1,987)
Total gross deferred tax liabilities		(21,950)		(19,142)
Net deferred tax liabilities	$	(6,808)	$	(5,253)

The valuation allowance as of December 31, 2022, is primarily relating to a capital loss realized on the sale of a foreign subsidiary whereby the Company does not anticipate a capital gain in the foreseeable future that would allow for the recognition of the capital loss carryover. In addition, the Company has a partial valuation allowance on certain state interest deduction limitations, which the Company estimates may not be fully utilized.

Under a provision in the 2017 U.S. Tax Cuts and Jobs Act, beginning in 2022, research and development costs incurred are no longer allowed as an immediate deduction for federal income tax purposes. Rather, these expenditures incurred must be capitalized and amortized over a five-year period for activities conducted in the United States and a 15 year period for activities conducted outside the United States.

The Company has various state and local operating loss carryforwards which will expire at various dates from 2032 to 2038. The Company does expect to be able to utilize these losses prior to expiration. The Company received income tax refunds in 2022 of $451 from the State of Tennessee related to a favorable filing position. The Company received income tax refunds in 2021 of $9,846, which were primarily comprised of U.S. federal income tax refund claims attributable to the CARES Act provisions, including alternative minimum tax credits and NOL carrybacks.

The Company has recorded compensation for certain covered employees in excess of $1,000 per year. Under Internal Revenue Code (IRC) Section 162(m), the Company is prohibited from deducting the amount of tax compensation that exceeds $1,000 per year for these employees. The covered employees are defined as the Chief Executive Officer, Chief Financial Officer, and the three next-highest-compensated officers of the Company. The Company considers the impact of the estimated IRC Section 162(m) limitations on the future deductibility of existing temporary differences.

Unrecognized Tax Benefits

Unrecognized tax benefits represent the aggregate tax effect of differences between the tax return positions and the amounts otherwise recognized in the Company’s consolidated financial statements, and are reflected in “Accrued expenses” and “Other long-term liabilities” in the Company’s consolidated balance sheets. The Company accounts for

uncertain tax positions by recognizing the financial statement effects of a tax provision only when based upon the technical merits, it is “more-likely-than-not” that the tax position will be sustained upon examination.

Balance as of December 31, 2021	$	2,350
Increase related to current year tax position		58
Decrease related to prior year tax position		(54)
Decrease related to settlements with tax authorities, net of federal benefit		(147)
Lapse of statute of limitations		(812)
Balance as of December 31, 2022	$	1,395

The Company recognizes interest and penalties with respect to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest and penalties related to unrecognized tax benefits for the year ended December 31, 2022 is $285, and was $289 for the year ended December 31, 2021.

The Company believes that it is reasonably possible that approximately $89 of its unrecognized tax benefits may be recognized by the end of 2023 as a result of settlements with various state taxing authorities, which is reflected in “Accrued expenses” in the Company’s consolidated balance sheet as of December 31, 2022. The Company recognized a decrease of up to $965 of its unrecognized tax benefits, including interest and penalties, related to an asset basis tax position and research and development tax credits as a result of a lapse of the statute of limitations.