Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 12 — INCOME TAXES

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates in effect for the year in which the difference is expected to reverse. Additionally, the impact of changes in the tax rates and laws on deferred taxes, if any, is reflected in the financial statement in the period of enactment. The deferred tax liabilities and assets for the Company represent the difference between the financial statement and tax basis of the partnership interest in Alta Enterprises, LLC. As such, the Company is using the single line-item approach.

The income tax provision (benefit) for the three and nine months ended September 30, 2021 and 2020 consisted of the following:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
Federal taxes-current	$	—	$	—		$	—	$	—
Federal taxes-deferred		—		(1.4	)		0.4		(2.6	)
State taxes-current		—		—			—		—
State taxes-deferred		—		(0.5	)		0.1		(0.8	)
	$	—	$	(1.9	)	$	0.5	$	(3.4	)

Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are considered in the relevant period. At the end of each interim reporting period, we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

The Company recorded an income tax expense of $0.0 million and a benefit of $1.9 million for the three months ended September 30, 2021, and 2020 and an income tax expense of $0.5 million and an income tax benefit of $3.4 million for the nine months ended September 30, 2021 and 2020 respectively. As a result of Alta’s third quarter 2021 analysis of the realizability of its deferred tax asset, and after considering tax planning initiatives and other inputs, Alta determined that it was more likely than not that deferred tax asset would not be realized and has thus maintained a full valuation allowance against the deferred tax asset.

Alta reviews the realizability of its deferred tax asset on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results are considered, along with any other positive or negative evidence. All of the factors that Alta considers in evaluating whether and when to establish or release all or a portion of the deferred tax asset valuation allowance involve significant judgment.

The effective tax rate for the nine months ended September 30, 2021 was (2.3)% when compared to 24.1% for the period from February 14, 2020 to September 30, 2020 in connection with the reverse recapitalization. This was mainly due to the impact of the establishment of the valuation allowance during the first quarter of 2021.

As of December 31, 2020, the Company has federal net operating tax loss carryforwards of approximately $27.0 million, which may be carried forward indefinitely and are eligible to offset 80% of future taxable income.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, includes various income and payroll tax provisions, modifications to federal net operating loss rules, business interest deduction limitations, and bonus depreciation eligibility for qualified improvement property.

The CARES Act did not materially impact our effective tax rate for prior periods, although it will impact the timing of future cash payments for taxes. As of September 30, 2021, we have deferred employer payroll taxes of $5.6 million under the CARES Act, with half of the deferred amounts due by December 31, 2021, and the remaining half due by December 31, 2022.