Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

13. Income Taxes

The effective tax rate from continuing operations was 25.6%, 24.7% and 27.0% in 2021, 2020 and 2019, respectively. A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:

	Percent of Income before Income Taxes
	2021			2020			2019
Statutory federal income tax rate		21.0	%		21.0	%		21.0	%
State income taxes - net of federal tax benefit		3.1			3.3			5.2
Foreign tax rate differential		1.3			0.3			—
Non-deductible expenses		0.4			0.7			1.0
Changes in unrecognized tax benefits		—			(0.8	)		0.4
Foreign tax incentives		—			—			(0.4	)
Other		(0.2	)		0.2			(0.2	)
Effective tax rate for the year		25.6	%		24.7	%		27.0	%

Income (loss) from continuing operations before income taxes was attributable to the following sources:

	2021		2020		2019
United States	$	36,203	$	45,070	$	33,612
Foreign		8,890		3,792		(429	)
Totals	$	45,093	$	48,862	$	33,183

Income tax expense (benefit) from continuing operations consisted of the following:

	2021					2020					2019
	Current		Deferred			Current		Deferred			Current		Deferred
Federal	$	4,901	$	2,534		$	957	$	8,702		$	7,270	$	(447	)
Foreign		2,389		(53	)		1,390		(326	)		497		(538	)
State and local		1,439		345			1,014		356			2,123		63
	$	8,729	$	2,826		$	3,361	$	8,732		$	9,890	$	(922	)

During 2018, the Company recorded a provision and related deferred tax liability of $0.6 million related primarily to the earnings of the Company’s subsidiary in Guatemala, which were deemed by management to no longer be permanently reinvested. The earnings and profits for all foreign subsidiaries had been previously included in the calculation of the one-time deemed repatriation transition tax, and thus, should there be a repatriation of earnings from any other foreign subsidiaries in future periods, the Company expects to be subject to only foreign withholding tax. Management does not currently anticipate a repatriation of earnings from any other foreign subsidiaries, except as provided above, as these earnings are deemed to be permanently reinvested.

Significant components of the Company’s deferred taxes as of December 31, 2021 and 2020 are as follows:

	2021			2020
Deferred income tax assets
Compensation accruals	$	2,387		$	2,446
Inventory valuation		2,008			2,647
Allowance for uncollectible accounts		489			497
Non-deductible accruals		3,538			3,419
Operating lease liability		6,220			3,804
Finance lease liability		2,087			—
Non-deductible intangibles		1,473			1,669
State deferred taxes		176			451
Capital loss carryforwards		1,982			1,982
Net operating loss carryforwards		30			34
		20,390			16,949
Valuation allowance		(1,982	)		(1,982	)
		18,408			14,967
Deferred income tax liabilities
Property, plant and equipment		8,983			7,925
Tax-deductible goodwill		4,937			4,623
Right of use asset - operating leases		6,150			3,759
Finance lease assets		2,051			—
Other		1,622			1,534
		23,743			17,841
Net deferred income tax liability	$	(5,335	)	$	(2,874	)

As further discussed in Note 6, the Company sold its investments in certain Brazilian subsidiaries in December 2017. In connection with this divestiture, the Company incurred a capital loss of $9.5 million on its investment in the Myers do Brazil business and recorded a deferred tax asset of $2.0 million for this capital loss carryforward. A valuation allowance of $2.0 million is recorded against this deferred tax asset as the recovery of the asset is not more likely than not.

In its 2017 U.S. Federal tax return, the Company recorded a tax benefit of approximately $14.3 million as a result of a worthless stock deduction related to the Company’s investment in the Brazil Business. Although management believes that the worthless stock deduction is valid, there can be no assurance that the IRS will not challenge it and, if challenged, that the Company will prevail.

The following table summarizes the activity related to the Company’s unrecognized tax benefits:

	2021		2020			2019
Balance at January 1	$	774	$	1,098		$	955
Increases related to previous year tax positions		—		59			143
Reductions due to lapse of applicable statute of limitations		—		(383	)		—
Balance at December 31	$	774	$	774		$	1,098

The total amount of gross unrecognized tax benefits that would reduce the Company’s effective tax rate was $0.8 million, $0.8 million and $1.1 million at December 31, 2021, 2020 and 2019, respectively.

The Company and its subsidiaries file U.S. Federal, state and local, and non-U.S. income tax returns. As of December 31, 2021, the Company is no longer subject to U.S. Federal examinations by tax authorities for tax years before 2015. The Company’s 2017 U.S. Federal tax return is currently under audit by the Internal Revenue Service (“IRS”). The IRS began the examination of the worthless stock deduction discussed above in the year ending December 31, 2019, and there have been no changes resulting from this audit as of December 31, 2021. The Company is subject to state and local examinations for tax years of 2017 through 2020. In addition, the Company is subject to non-U.S. income tax examinations for tax years of 2016 through 2020.