Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision for income taxes consists of the following:

	Years Ended December 31,
	2023		2022		2021
	(in thousands)
Current	$	52,058	$	37,489	$	6,755
Deferred	(6,527)		(13,332)		3,669
Income tax provision	$	45,531	$	24,157	$	10,424

The provision for income taxes differs from the amount computed by applying the statutory Federal income tax rate before the provision for income taxes.

The reconciliation of the Federal statutory income tax rate to the effective income tax rate is as follows: 

	Years Ended December 31,
	2023		2022		2021
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of Federal benefit	3.9	%	4.1	%	1.8	%
Change in valuation allowance	(1.4)	%	—	%	1.0	%
Excess tax benefits related to share-based compensation (Note 14)	(4.0)	%	(2.4)	%	(7.8)	%
Return to provision	0.2	%	(0.3)	%	—	%
Non-deductible executive compensation	1.7	%	—	%	—	%
Research and development tax credits	(1.2)	%	(2.1)	%	(1.1)	%
Other	0.2	%	(0.9)	%	0.2	%
Effective tax rate	20.4	%	19.4	%	15.1	%

On May 21, 2021, the State of Oklahoma enacted House Bill 2960, effectively reducing the corporate income tax rate in Oklahoma from 6% to 4%. This resulted in a benefit of $0.8 million included in the table above under State income taxes, net of Federal benefit, for the year ending December 31, 2021.

We have historically earned investment tax credits from the state of Oklahoma’s manufacturing property investment program. We use the flow-through method to account for investment tax credits earned on eligible tangible asset expenditures. Under this method, the investment tax credits are recognized as a reduction to our Oklahoma income tax expense in the year they are used. As part of our expansion projects in Oklahoma, we identified a separate, more advantageous Oklahoma credit program (not income tax related) which will cause us to discontinue our accumulation of credits for Oklahoma’s manufacturing property investment program after the 2022 tax year.

The Company had investment tax credit carryforwards with a valuation allowance reserved against them as we did not have sufficient taxable income to utilize the carryforwards, in part because we generated more credit each year than we were able to utilize. Because the Company will not generate additional excess credits after our 2022 tax year, we will be able to use our credit carryforwards against future taxable income and the related valuation allowance was reversed resulting in a one-time benefit of $3.1 million to the income tax provision for the year ended December 31, 2023. As of December 31, 2023, we have investment tax credit carryforwards of approximately $3.1 million. These credits have estimated expirations from the year 2039 through 2043.

In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 162(m), the tax deduction for covered executives of public companies is limited to $1.0 million per individual. Because of the increase in our stock price and timing of executive stock option exercises this resulted in an increase to the income tax provision of $3.8 million for the year ended December 31, 2023.

We also earn research and development tax credits as defined under Section 41 of the Internal Revenue Code. To qualify for the research and development tax credits, we perform annual studies that identify, document, and support eligible expenses related to qualified research and development activities. Eligible expenses include but are not limited to supplies, materials, contractor expenses and internal employee wages.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

The significant components of the Company’s deferred tax assets and liabilities are as follows:

 

	December 31,
	2023		2022
	(in thousands)
Deferred income tax assets (liabilities):
Allowance for credit losses and inventory reserves	$	1,724	$	1,337
Warranty accrual	5,462		4,184
Other accruals	3,989		4,814
Share-based compensation	8,560		7,440
Research & development expenses	18,647		11,265
Oklahoma investment credit carryforward	2,306		3,115
Other, net	1,673		2,339
	42,361		34,494
Valuation allowance	—		(3,115)
Net deferred income tax assets	42,361		31,379
Property & equipment	(54,495)		(50,040)
Total deferred income tax liabilities	(54,495)		(50,040)
Net deferred income tax liabilities	$	(12,134)	$	(18,661)

In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 174, research and development expenses incurred after December 31, 2021 are required to be capitalized and amortized over 5 years. The amortization requirements for tax purposes is a mid-year convention, meaning that the tax amortization is 10% in the year of acquisition, 20% in the following 4 years, and 10% in the final year.

The amount of income tax that we pay annually is dependent on various factors, including the timing of certain deductions. These deductions can vary from year to year and, consequently, the amount of income taxes paid in future years will vary from the amounts paid in prior years.

We file income tax returns in the U.S., state and foreign income tax jurisdictions. We are subject to U.S. income tax examinations for the tax years 2020 to present, and to non-U.S. income tax examinations for the tax years 2019 to present. In addition, we are subject to state and local income tax examinations for tax years 2019 to present. The Company continues to evaluate its need to file returns in various state jurisdictions. Any interest or penalties would be recognized as a component of income tax expense.