Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

(5) Income Taxes

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

	Year ended December 31,
	2022		2021		2020
Current tax provision (benefit):
Federal	$	(7,319)	$	—	$	(4,397)
State		1,813		846		(875)
		(5,506)		846		(5,272)
Deferred tax provision (benefit):
Federal		21,587		32,510		6,659
State		3,549		5,344		(199)
		25,136		37,854		6,460
Provision for income taxes	$	19,630	$	38,700	$	1,188

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,
	2022		2021		2020
Computed provision (benefit) for income taxes at the statutory rate	$	19,442	$	31,628	$	(1,539)
Increase (decrease) in income taxes resulting from:
State income tax provision, net of federal income tax benefit		4,295		6,247		173
Non-deductible expenses		546		1,007		2,539
Valuation allowance changes affecting the provision for income taxes		1,716		—		(892)
Excess tax benefits from share-based compensation		534		(92)		(1,434)
Other, net		(6,903)		(90)		2,341
Provision for income taxes	$	19,630	$	38,700	$	1,188

For the year ended December 31, 2022, the Company recorded a $1.7 million valuation allowance against certain deferred tax assets associated with state net operating losses with a limited carry forward period. 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. The increase in the valuation allowance for 2022 was primarily based on changes in the Company's income tax projections by jurisdiction which increased the amount of deferred tax assets that are anticipated to expire before the deferred tax assets may be utilized.

The Company recorded a $0.5 million expense, $0.1 million benefit and $1.4 million benefit from share-based compensation in 2022, 2021, and 2020, 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.

For the year ended December 31, 2022, the Company recorded a $7.3 million tax benefit for the release of uncertain tax position under ASC Topic 740 which is recorded in “Other, net” above.

The significant components of the Company’s net deferred tax assets and liabilities as of December 31, 2022 and 2021, are as follows (in thousands):

	As of December 31,
	2022		2021
Deferred tax assets:
Accrued benefits	$	29,154	$	21,401
Net operating loss carryforward		186,517		175,659
Aircraft credits		77,962		22,265
Deferred revenue		35,385		25,405
Operating lease liabilities		39,209		57,991
Interest deduction limitation		26,469		—
Accrued reserves and other		49,972		31,431
Total deferred tax assets		444,668		334,152
Valuation allowance		(1,716)		—
Deferred tax liabilities:
Accelerated depreciation		(1,094,538)		(940,867)
Operating lease right-of-use assets		(35,474)		(56,521)
Total deferred tax liabilities		(1,130,012)		(997,388)
Net deferred tax liability	$	(687,060)	$	(663,236)

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, 2022 and 2021, the Company had federal net operating losses of approximately $817.4 million and $745.8 million and state net operating losses of approximately $380.6 million and $554.7 million, respectively.  The estimated effective tax rate applicable to the federal and state net operating losses at December 31, 2022, was 21.0% and 3.45%, respectively. The Company anticipates that the federal and state net operating losses will start to expire in 2037 and 2023, respectively. The Company has no ongoing federal examinations. The Company has one ongoing state examination for tax year 2020. Federal tax years 2019, 2020 and 2021 are open to examination.

Under Accounting Standard Codification (“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, 2022, 2021, and 2020 is as follows (in thousands):

	Year ended December 31,
	2022		2021		2020
Unrecognized tax benefits at the beginning of year	$	15,529	$	14,980	$	14,620
Gross increases - current year tax positions		—		—		—
Gross increases - prior year tax positions		343		549		360
Gross decreases - prior year tax positions		(7,662)		—		—
Unrecognized tax benefits at end of year	$	8,210	$	15,529	$	14,980
Interest and penalties in year-end balance	$	607	$	976	$	427

For the years ended December 31, 2022, 2021, and 2020, the Company recorded $343,000, $549,000, and $360,000, respectively, of interest expense related to uncertain tax positions not offset by the Company's tax attributes. For the year ended December 31, 2022, the Company released $7.7 million of the prior year uncertain tax position, including interest, as the tax year statutes impacted by these positions have closed.