Income Taxes

3 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when temporary differences reverse. The

effect of a change in tax rates on deferred taxes is recognized in the period that the change is enacted. A valuation allowance is recorded to reduce the Company's deferred tax assets to the amount that is more likely than not to be realized. We had no recorded valuation allowance at March 31, 2024 and December 31, 2023. Our effective tax rate was 21.8% and 27.1% for the three months ended March 31, 2024 and 2023, respectively. The decrease in the effective tax rate is primarily the result of permanent differences during the quarter offsetting the loss in 2024 while increasing the tax rate calculated on income in 2023.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense.

At March 31, 2024 and December 31, 2023, we had a total of $5.5 million and $5.5 million in gross unrecognized tax benefits, respectively included in long-term income taxes payable in the consolidated balance sheet. Of this amount, $4.3 million and $4.4 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate as of March 31, 2024 and December 31, 2023. The net change in unrecognized tax benefits was a decrease of $0.1 million and an increase of $0.1 million during the three months ended March 31, 2024 and March 31, 2023, respectively. The difference in the net change in unrecognized tax benefits year over year for the three months is the result of underlying transactions that occurred in 2023 that did not occur in 2024. The total net amount of accrued interest and penalties for such unrecognized tax benefits was $0.8 million and $0.7 million at March 31, 2024 and December 31, 2023, respectively and is included in long-term income taxes payable in the consolidated balance sheets. These unrecognized tax benefits relate to state income tax filing positions. Income tax expense is increased each period for the accrual of interest on outstanding positions and penalties when the uncertain tax position is initially recorded. Income tax expense is reduced in periods by the amount of accrued interest and penalties associated with reversed uncertain tax positions due to lapse of applicable statute of limitations, when applicable or when a position is settled. Net interest and penalties included in income tax expense was nominal for both the three month period ended March 31, 2024 and March 31, 2023, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2024
	(in thousands)
Balance at December 31, 2023	$	5,522
Reductions due to lapse of applicable statute of limitations	(66)
Balance at March 31, 2024	$	5,456

A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. These changes could result from the expiration of the statute of limitations, examinations, or other unforeseen circumstances. We do not have any outstanding litigation related to income tax matters. At this time, management’s best estimate of the reasonably possible change in the amount of gross unrecognized tax benefits is approximately no change to an increase of $1.0 million during the next twelve months, due to the combination of expiration of certain statute of limitations and estimated additions. The federal statute of limitations remains open for the years 2020 and forward. Tax years 2013 and forward are subject to audit by state tax authorities depending on the tax code and administrative practice of each state.