Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

(5) Income Taxes

The provision for income taxes includes the following components (in thousands):

	Year ended December 31,
	2021		2020		2019
Current tax provision (benefit):
Federal	$	—	$	(4,397)	$	(4,395)
State		846		(875)		891
		846		(5,272)		(3,504)
Deferred tax provision (benefit):
Federal		32,510		6,659		95,655
State		5,344		(199)		14,055
		37,854		6,460		109,710
Provision for income taxes	$	38,700	$	1,188	$	106,206

The following is a reconciliation between a federal income tax rate of 21% and the effective tax rate which is derived by dividing the provision for income taxes by the income (loss) before the provision for income taxes (in thousands):

	Year ended December 31,
	2021		2020		2019
Computed provision (benefit) for income taxes at the statutory rate	$	31,628	$	(1,539)	$	93,724
Increase (decrease) in income taxes resulting from:
State income tax provision, net of federal income tax benefit		6,247		173		15,645
Non-deductible expenses		1,007		2,539		3,934
Valuation allowance changes affecting the provision for income taxes		—		(892)		(517)
Excess tax benefits from share-based compensation		(92)		(1,434)		(3,525)
Other, net		(90)		2,341		(3,055)
Provision for income taxes	$	38,700	$	1,188	$	106,206

For the year ended December 31, 2020, the Company released $0.9 million of valuation allowance against certain deferred tax assets primarily associated with state net operating losses with a limited carry forward period. For the year ended December 31, 2019, the Company released $0.5 million of valuation allowance against certain deferred tax assets primarily associated with ExpressJet state net operating losses. The decrease in the valuation allowance for 2020 was primarily based on changes in the Company's income tax projections which reduced the amount of deferred tax assets that are anticipated to expire before the deferred tax assets may be utilized.

The Company recorded a $0.1 million, $1.4 million and $3.5 million benefit from share-based compensation in 2021, 2020, and 2019, respectively, relating to ASU 2016-09 which, requires excess tax benefits and deficiencies to be recognized in the income tax provision during the period stock options are exercised and when stock awards vest.

The significant components of the Company’s net deferred tax assets and liabilities as of December 31, 2021 and 2020, are as follows (in thousands):

	As of December 31,
	2021		2020
Deferred tax assets:
Accrued benefits	$	21,401	$	19,668
Net operating loss carryforward		175,659		229,815
Aircraft credits		22,265		10,767
Deferred revenue		25,405		27,076
Operating lease liabilities		57,991		70,541
Accrued reserves and other		31,431		34,816
Total deferred tax assets		334,152		392,683
Valuation allowance		—		—
Deferred tax liabilities:
Accelerated depreciation		(940,867)		(950,071)
Operating lease right-of-use assets		(56,521)		(68,543)
Total deferred tax liabilities		(997,388)		(1,018,614)
Net deferred tax liability	$	(663,236)	$	(625,931)

The Company’s deferred tax liabilities were primarily generated through accelerated depreciation, combined with shorter depreciable tax lives, allowed under the IRS tax code for purchased aircraft and support equipment compared to the Company’s depreciation policy under GAAP for such assets using the straight-line method (see note 1 Nature of Operations and Summary of Significant Accounting Policies).

At December 31, 2021 and 2020, the Company had federal net operating losses of approximately $745.8 million and $987.0 million and state net operating losses of approximately $554.7 million and $653.1 million, respectively.  The estimated effective tax rate applicable to the federal and state net operating losses at December 31, 2021, was 21.0% and 3.45%, respectively. The Company anticipates that the federal and state net operating losses will start to expire in 2036 and 2022, respectively. The Company has no ongoing federal or state examinations. Federal tax years 2018, 2019 and 2020 are open to examination.

Under ASC Topic 740, the accounting guidance related to uncertainty in tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended December 31, 2021, 2020, and 2019 is as follows (in thousands):

	Year ended December 31,
	2021		2020		2019
Unrecognized tax benefits at the beginning of year	$	14,980	$	14,620	$	14,553
Gross increases - current year tax positions		—		—		—
Gross increases - prior year tax positions		549		360		67
Gross decreases - prior year tax positions		—		—		—
Unrecognized tax benefits at end of year	$	15,529	$	14,980	$	14,620
Interest and penalties in year-end balance	$	976	$	427	$	67

For the years ending December 31, 2021, 2020, and 2019, the Company recorded $549,000, $360,000, and $67,000, respectively, of interest expense related to uncertain tax positions not offset by the Company's tax attributes.