Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards, if any. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid.

During the fourth quarter of 2019, President Trump signed into law the Taxpayer Certainty and Disaster Relief Act of 2019 (“Tax Extenders Act”), which temporarily renewed approximately two dozen credits that previously expired or were set to expire at the end of 2019. Notable for the Company was the retroactive extension of the energy efficient homes credit for 2018 through 2020. As a result, the Company recognized a $3.5 million tax benefit for the year ended December 31, 2019.

In accordance with ASC 740, we evaluate our deferred tax assets, including the benefit from NOLs and tax credit carryforwards, if any, to determine if a valuation allowance is required. Companies must assess, using significant judgments, whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment gives appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, our experience with operating losses and our experience of utilizing tax credit carryforwards and tax planning alternatives. Based upon a review of all available evidence, we believe our deferred tax assets were fully realizable in all periods presented.

At December 31, 2019, the Company’s total deferred tax assets were $20.5 million which is offset by $10.9 million of total deferred tax liabilities for a $9.6 million net deferred tax asset which is reported on the Company’s Consolidated Balance Sheets.

The tax effects of the significant temporary differences that comprise the deferred tax assets and liabilities are as follows:



	December 31,
(In thousands)	2019		2018
Deferred tax assets:
Warranty, insurance and other accruals	$	8,114	$	8,218
Equity-based compensation	2,109		4,096
Inventory	4,254		4,441
Operating lease liabilities	4,613		—
State taxes	213		185
Net operating loss carryforward	754		3,240
Deferred charges	426		—
Total deferred tax assets	$	20,483	$	20,180

Deferred tax liabilities:
Federal effect of state deferred taxes	$	476	$	1,079
Depreciation	5,288		4,801
Operating lease right-of-use assets	4,613		—
Prepaid expenses	475		285
Other	—		533
Total deferred tax liabilities	$	10,852	$	6,698

Net deferred tax asset	$	9,631	$	13,482

The provision from income taxes consists of the following:



	Year Ended December 31,
(In thousands)	2019		2018		2017
Current:
Federal	$	29,602	$	24,408	$	33,392
State	4,985		4,261		2,414
	$	34,587	$	28,669	$	35,806

	Year Ended December 31,
(In thousands)	2019		2018		2017
Deferred:
Federal	$	1,490	$	2,333	$	11,916
State	2,361		2,624		521
	$	3,851	$	4,957	$	12,437
Total	$	38,438	$	33,626	$	48,243

For 2019, 2018 and 2017, the Company’s effective tax rate was 23.15%, 23.80%, and 40.09%, respectively. The decrease in 2019’s effective tax rate from 2018 was primarily attributable to an increased tax benefit from equity compensation. The decrease in the effective tax rate in 2018 from 2017 was primarily attributable to the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) which included the reduction of the corporate income tax rate from 35% to 21%, partially offset by the repeal of the domestic production activity deduction and other non-deductible costs. Also, as a result of the 2017 Tax Act, the Company revalued its deferred tax assets and recognized a $6.5 million non-cash tax expense in 2017. Reconciliation of the differences between income taxes computed at the federal statutory tax rate and consolidated benefit from income taxes are as follows:



	Year Ended December 31,
(In thousands)	2019			2018			2017
Federal taxes at statutory rate	$	34,865		$	29,671		$	42,113
State and local taxes – net of federal tax benefit	5,981			5,636			3,420
Deferred tax asset re-measurement as a result of 2017 Tax Act	—			—			6,520
Equity Compensation	(1,251		)	(254		)	(1,368		)
Manufacturing deduction	—			—			(3,262		)
Federal tax credits	(3,493		)	(2,817		)	—
Other	2,336			1,390			820
Total	$	38,438		$	33,626		$	48,243

The Company files income tax returns in the U.S. federal jurisdiction, and various states. The Company is no longer subject to U.S. federal, state or local examinations by tax authorities for years before 2015. The Company is audited from time to time, and if any adjustments are made, they would be either immaterial or reserved.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. At December 31, 2019, 2018 and 2017, we had no unrecognized tax benefits due to the lapse of the statute of limitations and completion of audits in prior years. We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change.

During 2016, the Company fully utilized its federal NOL carryforwards and federal credit carryforwards. The Company had $0.6 million of state NOL carryforwards, net of the federal benefit, at December 31, 2019. Our state NOLs may be carried forward from one to 15 years, depending on the tax jurisdiction, with $0.5 million expiring between 2022 and 2027 and $0.1 million expiring between 2028 and 2032, absent sufficient state taxable income.