Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 14—INCOME TAXES

The Company is subject to income taxes in the U.S. federal jurisdiction and various state and local jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act contains several corporate income tax provisions which include (i) temporary removal of the 80% taxable income limitation on utilization of Net Operating Losses (NOLs), (ii) deferral of employer withholding tax requirements, (iii) temporarily liberalizing the interest deductions rules under IRC Sec. 163(j) of the Tax Act raising the adjusted taxable income limitation from 30% to 50%, among others. Additionally, on December 27, 2020, the Consolidated Appropriations Act, 2021 (the “Appropriations Act”) was signed into law. Neither the CARES Act nor the Appropriations Act had a material impact on the Company’s financial statements for the years ending December 21, 2021 or December 31, 2020.

On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law. The ARPA contains several corporate income tax provisions which include (i) extending the $1 million limitation on deductions for compensation paid to executives of publicly traded corporations to include compensation paid to the eight highest paid individuals (rather than three highest), plus the chief executive officer and the chief financial officer (effective for tax years after 2026), and (ii) extending the period for which companies may claim an employee retention credit. The ARPA did not have a material impact on the Company’s financial statements for the year ending December 31, 2021.

The following table details the components of the Company’s income tax provision (benefit) for the years ended December 31, 2021, December 31, 2020 and December 31, 2019:

	Year Ended December 31,
	2021			2020			2019
Current expense (benefit):
Federal	$	—		$	—		$	—
State		(91	)		81			544
	$	(91	)	$	81		$	544
Deferred expense (benefit):
Federal	$	3,368		$	(5,358	)	$	(722	)
State		884			(719	)		(176	)
	$	4,252		$	(6,077	)	$	(898	)
Income Tax Expense (Benefit)	$	4,161		$	(5,996	)	$	(354	)

The following table illustrates the deferred tax assets and liabilities as of December 31, 2021 and December 31, 2020:

	Year ended December 31,
	2021			2020
Deferred tax assets:
Net operating loss carry forwards	$	17,180		$	22,203
Federal tax credits		12,606			10,464
Book reserves		1,353			1,538
Intangible asset amortization		7,553			9,264
Other		230			3,396
Total Deferred Tax Assets		38,922			46,865
Less: valuation allowance		(3,900	)		(3,888	)
Net deferred tax assets	$	35,022		$	42,977
Deferred tax liabilities:
Property depreciation	$	(23,516	)	$	(28,155	)
Stock compensation		(936	)		—
Total deferred tax liabilities		(24,452	)		(28,155	)
Net Deferred Tax Assets	$	10,570		$	14,822

As of December 31, 2021, the Company has federal net operating loss (“NOL”) carryforwards of $73,550, of which $34,454 were generated prior to the TCJA and will begin to expire in tax year 2027. The remaining $39,096 current NOL carryforwards are indefinite lived. Of the total federal NOL carryforwards, $12,986 were historically generated by Monmouth Energy, Inc. and are limited for use under the separate return limitation year rules.

On January 1, 2020, the minority investor of MEC, Johnstown LFG Holdings, Inc. (via assignment of shares from MEC on December 9, 2019), was bought out by MEH, converting MEC from a partnership to a disregarded entity for U.S. federal income tax purposes, and which is currently wholly owned by MEH. This change in tax status resulted in a tax benefit of $2,417 in 2020. This transaction allowed Monmouth Energy Inc., a subsidiary of MEC, to file as part of our consolidated federal tax group.

The Company has $12,606 of federal tax credit carryforwards that expire 20 years from the date incurred, which begin to expire in tax year 2026.

The Company has pre-tax state net operating loss carryforwards of $21,572 which will begin to expire in tax year 2026.

The following table details the components of the Company’s income tax provision (benefit) for the years ended December 31, 2021, 2020 and 2019:

	Year Ended December 31,
	2021			2020			2019
Tax provision at federal statutory rate of 21%	$	(77	)	$	(293	)	$	1,125
State tax provision		800			(50	)		(29	)
Non-controlling interests		—			—			16
Permanent differences		79			—			—
Stock compensation		723			—			—
162(m) Compensation limitation		4,382			—			—
Valuation allowance		12			(286	)		634
Production tax credit		(2,112	)		(2,036	)		(1,881	)
Return to provision		(29	)		(34	)		(24	)
Impact of MEC partnership dissolution		—			(2,417	)		—
Deferred tax adjustments		383			(908	)		—
Other		—			28			(195	)
Total Income Tax Expense (Benefit)	$	4,161		$	(5,996	)	$	(354	)

As of December 31, 2021, the tax years 2018, 2019 and 2020 are subject to examination by the IRS.

Valuation Allowance

The Company annually reviews its deferred tax assets for the possibility they will not be realized. A valuation allowance will be recorded if it is determined more than a 50% likelihood exists that a deferred tax asset will not be realized. A $3,900 valuation allowance exists for Monmouth Energy, Inc., which represents the subsidiary’s deferred tax assets that are not expected to be realized. This represents a $12 increase valuation allowance from $3,888 at the year ended December 31, 2020.

Uncertain Tax Position

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in both federal and state jurisdictions. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of each situation’s technical merits.

At this point in time the Company is not aware of any tax positions taken that would give rise to recording an uncertain tax position. As such, the Company has not recorded any liability for unrecognized tax benefits as of December 31, 2021 or 2020. The Company records interest and penalties as a component of income tax expense. However, as there are no unrecognized tax benefits for the years ended December 31, 2021 and December 31, 2020, the Company has zero penalties or interest accrued at December 31, 2021 and 2020, respectively.