Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

In determining the interim provision for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income and adds the tax effects of any discrete items in the reporting period in which they occur.

For the three and nine months ended September 30, 2021 and 2020, the Company’s annual estimated effective tax rate differed from the U.S. federal statutory tax rate of 21% primarily due to exclusion of non-controlling interest income, state taxes, permanent book tax differences, and income tax credits. For the three months ended September 30, 2021 and 2020, the Company's income tax expense was $1.3 million and $1.5 million, with effective tax rate of 23.7% and 24.1%, respectively. For the nine months ended September 30, 2021 and 2020, the Company’s income tax expense was $4.0 million and $5.5 million, with effective tax rates of 19.6% and 26.7%, respectively. On June 10, 2021, the Company was granted PPP loan forgiveness of $5.0 million, in whole, by meeting the conditions for use of loan proceeds. The Company recorded the loan forgiveness as a gain on forgiveness of debt in the accompanying condensed consolidated statements of income for the nine months ended September 30, 2021. The effective tax rate was lowered by 3.9% from 23.5%, for the nine months ended September 30, 2021.

ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of these assets is more-likely-than-not. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Based upon the level of historical taxable income, at this time, the Company determined that sufficient positive evidence existed to conclude that it is more likely than not there will be full utilization of the deferred tax assets in each jurisdiction.

The Company remains subject to IRS examination for the 2016 through 2019 tax years, and received notice in February 2019 that it is under examination for years 2016 and 2017. Additionally, the Company files multiple state and local income tax returns and remains subject to examination in various of these jurisdictions, including California for the 2016 through 2019 tax years, and South Carolina for the 2017 through 2019 tax years. In September 2020, the Company acquired 100% LLC member interest in Lollicup Franchising, LLC. Lollicup Franchising, LLC was treated as a partnership for income tax purposes prior to the acquisition. It is currently under audit for tax year 2015 and 2016. The Company does not believe the outcome of this audit will have a material impact on the Company’s financial statements.

The Company accounts for uncertainties in income tax in accordance with ASC 740-10 — Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of September 30, 2021, the Company does not have any unrecognized tax benefits.

On March 27, 2020, the CARES Act was signed into law by the president. The CARES Act provides several favorable tax provisions. The Company evaluated the impacts of CARES Act and determined it currently has no material impact to the Company’s consolidated financial statements.

The Taxpayer Certainty and Disaster Relief Act of 2020, enacted on December 27, 2020, added a temporary exception to the 50% limit (TCJA) on the amount that businesses may deduct for food or beverages. Beginning January 1, 2021, through December 31, 2022, the temporary exception allows a 100% deduction for food or beverages from restaurants. The Company evaluated the impacts and does not believe the Act has material impact to the income tax provision.

On March 10, 2021, the “American Rescue Plan Act of 2021” was signed into law by the president. The American Rescue Plan Act of 2021 provides several tax provisions. The Company evaluated the impacts of the American Rescue Plan Act of 2021 and determined it has no material impact to the income tax provision.