Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

11. Income Taxes

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

	December 31,
	2023			2022
Current taxes:
Domestic	$	10,126		$	11,047
Foreign		20			5
		10,146			11,052
Deferred taxes:
Domestic		331			1,554
Foreign		—			1
		331			1,555
Income tax expense	$	10,477		$	12,607
Income before income taxes:
Domestic income	$	34,400		$	49,108
Foreign income		62			39
Total	$	34,462		$	49,147
Effective income tax rate		30.4	%		25.7	%

The Company’s effective tax rates on pre-tax income were 30.4% and 25.7% for the years ended December 31, 2023 and 2022, respectively. The increase in the Company’s effective tax rate for the year ended December 31, 2023, compared to the prior year was primarily due to tax deductibility limitations on executive compensation and a decrease in unrecognized tax benefits liabilities during the year ended December 31, 2022 due to the lapse of the statute of limitations.

For the year ended December 31, 2023 and 2022, the effective tax rate differs from the U.S. federal statutory income tax rate as follows:

	December 31,
	2023		2022
Tax at federal statutory rate	21.0	%	21.0	%
State taxes, net	4.4		5.4
Unrecognized tax benefits	0.1		(2.0)
Deductibility limitations on excess compensation	3.3		0.4
Tax credits	(0.5)		(0.1)
Permanent items	2.0		1.0
Other	0.1		—
Effective income tax rate	30.4	%	25.7	%

For the year ended December 31, 2023, the effective tax rate differs from the federal statutory rate primarily due to state income taxes, which had a tax rate impact of 4.4%. Other items impacting the effective tax rate in 2023 include tax deductibility limitations on executive compensation and permanent items. 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%, and a decrease in unrecognized tax benefits primarily relating to an asset basis tax position and research and development tax credits as a result of a lapse of the statute of limitations.

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

	December 31,
	2023		2022
Deferred tax assets:
Accrued expense	$	1,928	$	3,830
Net operating loss carryforward		130		257
Stock compensation		1,798		1,303
Interest limitation		1,689		2,474
Lease liability		3,026		2,891
Capital loss carryover		2,110		2,135
Research and development costs		1,350		1,434
Other		3,244		3,609
Total gross deferred tax assets		15,275		17,933
Valuation allowance		(2,616)		(2,791)
Net deferred tax assets		12,659		15,142
Deferred tax liabilities:
Plant, equipment and leasehold improvements		(8,825)		(9,510)
Intangible assets		(6,745)		(8,020)
Right-of-use assets		(2,851)		(2,749)
Other		(1,377)		(1,671)
Total gross deferred tax liabilities		(19,798)		(21,950)
Net deferred tax liabilities	$	(7,139)	$	(6,808)

The valuation allowance as of December 31, 2023, 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 a minimal amount of 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 has recorded compensation for certain covered employees in excess of $1.0 million per year. Under Internal Revenue Code (IRC) Section 162(m), the Company is prohibited from deducting the amount of tax compensation that exceeds $1.0 million per year for these employees. The covered employees are defined as the Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), 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, 2022	$	1,395
Increase related to current year tax position		42
Increase related to prior year tax position		22
Decrease related to prior year tax position		(62)
Decrease related to settlements with tax authorities, net of federal benefit		(80)
Balance as of December 31, 2023	$	1,317

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 was $0.3 million for the years ended December 31, 2023 and 2022, respectively.

The Company believes that it is reasonably possible that approximately $0.9 million of its unrecognized tax benefits may be recognized by the end of 2024 as a result of a lapse of the statute of limitations, which is reflected in “Accrued expenses” in the Company’s consolidated balance sheet as of December 31, 2023.