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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
As of December 31, 2022 and 2021, we are subject to U.S. federal and state income taxes with respect to our allocable share of any taxable income or loss of Topco LLC, as well as any stand-alone income or loss we generate. Topco LLC is organized as a limited liability company and treated as a partnership for federal tax purposes and generally does not pay income taxes on its taxable income in most jurisdictions. Instead, Topco LLC’s taxable income or loss is passed through to its members, including us.
Components of income from continuing operations before income taxes for the periods presented were as follows (in thousands):
Year Ended December 31,
202220212020
U.S.$551,472 $530,853 $82,012 
International— (88)(316)
Total income from continuing operations$551,472 $530,765 $81,696 
Income tax expense (benefit) consisted of the following for the periods presented (in thousands):
Year Ended December 31,
202220212020
Current tax expense
Federal$16,312 $9,291 $6,093 
State and local2,173 1,623 2,251 
International6 3,697 — 
Total current tax expense18,491 14,611 8,344 
Deferred tax expense (benefit)
Federal$39,924 $36,564 $(3,922)
State and local2,394 10,340 (1,542)
Total deferred tax expense (benefit)42,318 46,904 (5,464)
Total provision for income taxes$60,809 $61,515 $2,880 
A reconciliation between the Company’s effective tax rate and the applicable U.S. federal statutory income tax rate as of the periods presented is summarized as follows:
December 31, 2022December 31, 2021December 31, 2020
Federal statutory rate21.0 %21.0 %21.0 %
State and local taxes, net of federal benefits0.6 2.2 0.3 
Deferred tax revaluation0.3 — (1.8)
Income of non-controlling interest(10.3)(11.4)(18.9)
Taxable (loss) gain on subsidiary liquidation— (0.7)2.7 
Equity-based compensation— 0.1 1.3 
Research and development credits(0.1)(0.4)(0.1)
Valuation allowance0.1 0.1 (1.5)
Other(0.6)0.7 0.5 
Effective tax rate11.0 %11.6 %3.5 %
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss and tax credit carryforwards. Significant items comprising the net deferred tax assets were as follows as of the periods presented below (in thousands):
December 31, 2022December 31, 2021
Deferred tax assets
Investment in Topco LLC$636,498$675,855
Deductions to be received for the Tax Receivable Agreement payments148,681154,093
Capital loss carryforward3,265—
Other1,1311,249
Total deferred tax assets789,575831,197
Valuation allowance(23,776)(23,080)
Total deferred tax assets, net of valuation allowance$765,799$808,117
As a result of the Organizational Transactions, IPO, and subsequent exchanges and financing, we acquired LLC Units and recognized a deferred tax asset for the difference between the financial reporting and tax basis of our investment in Topco LLC which included net deferred tax assets of $765.8 million primarily associated with: (i) $636.5 million related to temporary differences in the book basis as compared to the tax basis of our Company’s investment in Topco LLC and (ii) $148.7 million
related to tax benefits from future deductions attributable to payments under the TRA, (iii) $3.3 million related to capital loss carryforwards generated during the sale of Vector, and (iv) $23.8 million valuation allowance on these items.
The valuation allowance increased by $0.7 million and $9.4 million during the years ended December 31, 2022 and 2021, respectively.
The realizability of the Company’s deferred tax asset related to its investment in Topco LLC depends on the Company receiving allocations of tax deductions for its tax basis in the investment and on the Company generating sufficient taxable income to fully offset such deductions. We believe it is more likely than not that the Company will generate sufficient taxable income in the future to fully realize any deductions allocated to it from Topco LLC associated with the reversal of its tax basis as of December 31, 2022. However, a portion of the deferred tax asset may only be realizable through the sale or liquidation of the investment and our ability to generate sufficient capital gains. Therefore, the change in the valuation allowance during December 31, 2022 is primarily due to an increase to reflect the deferred tax asset that is more likely than not to not be realized.
Net operating loss (“NOL”) and tax credit carryforwards as of December 31, 2022 were as follows (in millions):
AmountExpiration Years
Capital loss carryforward$3.3 2026
Tax credits, state$0.1 CA - Do not expire
As of December 31, 2022 and 2021, the Company had $6.3 million and $0.2 million of unrecognized tax benefits, all of which would affect the effective tax rate if recognized. The Company expects our unrecognized tax benefits may decrease by $1.9 million in the next twelve months due to statute expiration. The Company recognizes interest related to uncertain tax benefits as a component of income tax expense, including $1.0 million recognized during the year ended December 31, 2022.
The aggregate changes in the balance of the Company’s unrecognized tax benefits were as follows for the periods presented (in thousands):
Year Ended December 31,
202220212020
Balance, beginning of year$241$220$208
Gross increases based on tax positions related to current year13023262
Gross increases based on tax positions related to prior years6,775——
Gross decreases based on tax positions related to prior years(889)(211)(50)
Balance, end of year$6,257$241$220
The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company received a notification on November 2, 2022 from the Internal Revenue Service (“IRS”) informing us of initiated administrative proceedings (audit) of Maravai Life Sciences Holdings, LLC’s 2020 tax year. We do not have any further information or communication from the taxing authorities with regards to their requests at this time. The Company is no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations for years before 2018.
Payable to Related Parties Pursuant to the Tax Receivable Agreement
We are a party to a TRA with MLSH 1 and MLSH 2. The TRA provides for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of certain tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of the Organizational Transactions, IPO and any subsequent purchases or exchanges of LLC Units of Topco LLC. Based on our current projections of taxable income, and before deduction of any specially allocated depreciation and amortization, we anticipate having enough taxable income to utilize most of these tax benefits.
As of December 31, 2022, our liability under the TRA is $718.2 million, payable to MLSH 1 and MLSH 2, representing approximately 85% of the calculated tax savings we anticipate being able to utilize in future years. During the year ended December 31, 2022, the Company recognized a loss of $4.1 million on TRA liability adjustment primarily due to changes in our estimated state apportionment and the corresponding change of our estimated state tax rate.
We made payments of $35.3 million to MLSH 1 and MLSH 2 pursuant to the TRA during the year ended December 31, 2022, of which $1.1 million is related to interest. We made payments of $1.3 million to MLSH 1 and MLSH 2 pursuant to the TRA during the year ended December 31, 2021. No payments were made during the year ended December 31, 2020. As of December 31, 2022 and 2021, our liabilities under the TRA were $718.2 million and $748.3 million, respectively.
Tax Distributions to Topco LLC’s Owners
Topco LLC is subject to an operating agreement put in place at the date of the Organizational Transactions (“LLC Operating Agreement”). The LLC Operating Agreement has numerous provisions related to allocations of income and loss, as well as timing and amounts of distributions to its owners. This agreement also includes a provision requiring cash distributions enabling its owners to pay their taxes on income passing through from Topco LLC. These tax distributions are computed based on an assumed income tax rate equal to the sum of (i) the maximum combined marginal federal and state income tax rate applicable to an individual and (ii) the net investment income tax. The assumed income tax rate ranges from 46.7% to 54.1% in certain cases where the qualified business income deduction is unavailable.
In addition, under the tax rules, Topco LLC is required to allocate taxable income disproportionately to its unit holders. Because tax distributions are determined based on the holder of LLC Units who is allocated the largest amount of taxable income on a per unit basis, but are made pro rata based on ownership, Topco LLC is required to make tax distributions that, in the aggregate, will likely exceed the amount of taxes Topco LLC would have otherwise paid if it were taxed on its taxable income at the assumed income tax rate. Topco LLC is subject to entity level taxation in certain states and certain of its subsidiaries are subject to entity level U.S. and foreign income taxes. As a result, the accompanying consolidated statements of income include income tax expense related to those states and to U.S. and foreign jurisdictions where Topco LLC or any of our subsidiaries are subject to income tax.
During the year ended December 31, 2022, Topco LLC paid tax distributions of $310.0 million to its owners, including $159.8 million to us. During the year ended December 31, 2021, Topco LLC paid tax distributions of $283.2 million to its owners, including $129.7 million to us. During the year ended December 31, 2020, Topco LLC paid tax distributions of $13.1 million to its owners, including $4.9 million to us.
As of December 31, 2022, no amounts for tax distributions have been accrued as such payments were made during the period.