Income Taxes

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 11. Income Taxes

The Company’s quarterly income tax provision is measured using an estimate of its consolidated annual effective tax rate, adjusted in the current period for discrete income tax items, within the periods presented. The comparison of the Company’s income tax provision between periods may be impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate differentials, and discrete items. The Company’s effective tax rate was 37.2% and 31.8% for the three months ended June 30, 2023 and 2022, and 35.0% and (11.3%) for the six months ended June 30, 2023, and 2022, respectively. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% for the three and six months ended June 30, 2023 and 2022 is due to nondeductible permanent items, state taxes, and the reversal of the Company’s indefinite reinvestment assertion.

As of June 30, 2023, the Company’s deferred tax assets included a valuation allowance of $108 primarily related to certain net operating loss, capital loss, and tax credit carryforwards of the Company’s foreign subsidiaries. The factors used to assess the likelihood of realization were the past performance of the related entities, forecasts of future taxable income, future reversals of existing taxable temporary differences, and available tax planning strategies that could be implemented to realize the deferred tax assets. The ability or failure to achieve the forecasted taxable income in these entities could affect the ultimate realization of deferred tax assets.

As of June 30, 2023, the Company had gross federal, state, and foreign net operating loss carryforwards of approximately $0, $21, and $105, respectively. The state net operating losses have carryforward periods of five to twenty years and begin to expire in 2027. The foreign net operating losses have carryback periods of three years, carryforward periods of twenty years, or are indefinite, and begin to expire in 2036.

The Company’s liability for unrecognized tax benefits is recorded within other noncurrent liabilities in the condensed consolidated balance sheets and recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes in the condensed consolidated statements of operations. As of June 30, 2023, and December 31, 2022, the total gross unrecognized tax benefits were $7 and $8, respectively. The Company had accrued gross interest and penalties as of each of June 30, 2023 and

December 31, 2022 of $2. During the three and six months ended June 30, 2023 and 2022, the Company did not recognize net interest expense.

If all of the Company’s unrecognized tax benefits as of June 30, 2023, were recognized, $8 would impact the Company’s effective tax rate. The Company does not expect any unrecognized tax benefits to expire in the next twelve months.

The Company files income tax returns in the U.S. federal jurisdiction, and various state, local, and foreign jurisdictions. As of June 30, 2023, with few exceptions, neither the Company nor its subsidiaries are subject to examination prior to tax year 2014. There are various other audits in state and foreign jurisdictions, including an ongoing IRS exam related to the 2019 final S Corporation return. No adjustments have been proposed and the Company does not expect the results of the audits to have a material impact on the Interim Statements.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022, which includes changes to the U.S. corporate income tax system, including a 15% minimum tax based on “adjusted financial statement income” for certain large corporations which is effective for taxable years beginning after December 31, 2022, and a 1% excise tax on share repurchases after December 31, 2022. While these tax law changes are not expected to have a material adverse effect on the Company's results of operations going forward, it is unclear how this legislation will be implemented by the U.S. Department of Treasury and what, if any, impact it will have on the Company's effective tax rate. The Company will continue to evaluate the impact of the Inflation Reduction Act as further information becomes available.