Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

Components of current and deferred income tax expense (benefit) are as follows ($000’s omitted):

 

	2023		2022		2021
Current expense
Federal	$	622,205	$	615,434	$	430,686
State and other	120,424		100,223		73,671
	$	742,629	$	715,657	$	504,357
Deferred expense
Federal	$	72,854	$	55,653	$	57,743
State and other	31,412		50,931		1,425
	$	104,266	$	106,584	$	59,168
Income tax expense	$	846,895	$	822,241	$	563,525

The following table reconciles the statutory federal income tax rate to the effective income tax rate:

 

	2023		2022		2021
Income taxes at federal statutory rate	21.0	%	21.0	%	21.0	%
State and local income taxes, net of federal tax	3.5		3.4		3.3
Federal tax credits	(0.2)		(0.9)		(1.2)
Deferred tax asset valuation allowance	—		0.4		(0.8)
Other	0.3		—		0.2
Effective rate	24.6	%	23.9	%	22.5	%

The effective tax rates differ from the federal statutory rate primarily due to state income tax expense, benefits associated with federal energy efficient home credits, and changes in valuation allowances relating to projected utilization of certain state net operating loss ("NOL") carryforwards.

Deferred tax assets and liabilities reflect temporary differences arising from the different treatment of items for tax and accounting purposes. Components of our net deferred tax liability are as follows ($000’s omitted):

 

	At December 31,
	2023		2022
Deferred tax assets:
Accrued insurance	$	140,126	$	138,289
Inventory valuation reserves	58,819		58,339
Capitalized inventory expenses	39,037		32,620
State NOL carryforwards	83,601		105,609
Other	65,432		66,500
	387,015		401,357
Deferred tax liabilities:
Deferred income	(537,855)		(439,863)
Fixed assets and intangibles	(27,890)		(31,921)
Other	(33,909)		(31,802)
	(599,654)		(503,586)
Valuation allowance	(24,756)		(30,869)
Net deferred tax liability	$	(237,395)	$	(133,098)

We have state NOLs in various jurisdictions that may generally be carried forward up to 20 years, depending on the jurisdiction. Our state NOL carryforward deferred tax assets will expire if unused at various dates as follows: $10.7 million from 2024 to 2028 and $72.9 million from 2029 and thereafter.

We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is "more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods. We conduct our evaluation by considering all available positive and negative evidence, including, among other factors, historical operating results, forecasts of future profitability, the duration of statutory carryforward periods, and the outlooks for the U.S. housing industry and broader economy.

The accounting for deferred taxes is based upon estimates of future results. Differences between estimated and actual results could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated results of operations or financial position. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time.

Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. We had $58.2 million and $23.6 million of gross unrecognized tax benefits at December 31, 2023 and 2022, respectively. If recognized, $46.0 million and $18.7 million, respectively, of these

amounts would impact our effective tax rate. Additionally, we had accrued interest and penalties of $6.3 million and $4.1 million at December 31, 2023 and 2022, respectively.

We do not expect the total amount of gross unrecognized tax benefits to increase or decrease by a material amount within the next twelve months. A reconciliation of the change in the unrecognized tax benefits is as follows ($000’s omitted):

 

	2023		2022		2021
Unrecognized tax benefits, beginning of period	$	23,612	$	22,536	$	30,855
Increases related to positions taken during a prior period	34,687		—		1,428
Decreases related to positions taken during a prior period	—		(303)		(8,896)
Increases related to positions taken during the current period	—		1,450		267
Decreases related to lapse of the applicable statute of limitations	(71)		(71)		(1,118)
Unrecognized tax benefits, end of period	$	58,228	$	23,612	$	22,536

We continue to participate in the Compliance Assurance Process (“CAP”) with the IRS as an alternative to the traditional IRS examination process. Through the CAP program, we work with the IRS to achieve tax compliance by resolving issues prior to filing the tax return. We are also currently under examination by state taxing jurisdictions and anticipate finalizing certain of the examinations within the next twelve months. The outcome of these examinations is not yet determinable, and we are not aware of unrecorded liabilities. The statute of limitations for our major tax jurisdictions generally remains open for examination for tax years 2019 to 2023.