FEDERAL AND STATE INCOME TAXES

12 Months Ended

Dec. 31, 2020

FEDERAL AND STATE INCOME TAXES

FEDERAL AND STATE INCOME TAXES

NOTE 8. FEDERAL AND STATE INCOME TAXES

Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid.  We are subject to income taxes in the United States and numerous state jurisdictions.  Significant judgments and estimates are required in the determination of the consolidated income tax expense.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.  

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

	Year Ended December 31,
	2020		2019
Deferred tax assets:	(in thousands)
Operating lease liabilities	$	7,170	$	2,981
Accrued expenses not deductible until paid		6,105		5,215
Goodwill and intangible assets		1,264		1,426
Finance lease obligations		794		287
Net operating loss carry forwards		298		1,643
Revenue recognition		238		201
Allowance for doubtful accounts		225		168
Equity incentive compensation		204		188
Other		5		60
Total deferred tax assets	$	16,303	$	12,169
Deferred tax liabilities:
Tax over book depreciation	$	(30,315)	$	(30,941)
Operating leases - right of use assets		(7,075)		(2,959)
Prepaid expenses deductible when paid		(2,327)		(2,095)
Other		—		(191)
Total deferred tax liabilities		(39,717)		(36,186)
Net deferred tax liabilities	$	(23,414)	$	(24,017)

The Company has certain state net operating loss carryovers of approximately $0.3 million that expire in varying years through 2040.  The Company expects to fully utilize its tax attributes in future years before they expire.

Significant components of the provision (benefit) for income taxes are as follows:

	Year Ended December 31,
	2020		2019
Current:	(in thousands)
Federal	$	2,410	$	(637)
State		211		173
Total current		2,621		(464)
Deferred:
Federal		(765)		194
State		353		114
Total deferred		(412)		308
Total income tax expense (benefit)	$	2,209	$	(156)

A reconciliation between the effective income tax rate and the statutory federal income tax rate of 21% is as follows:

	Year Ended December 31,
	2020			2019
	(dollars in thousands)
Income tax expense (benefit) at statutory federal rate	$	1,461		$	(1,019)
Federal income tax effects of:
State income tax benefit		(44)			(36)
Per diem and other nondeductible meals and entertainment		378			388
Taxes related to prior years		346			—
Non-deductible compensation		219			271
Loss carryback rate benefit		(628)			—
Other		(87)			(46)
Federal income tax expense (benefit)		1,645			(442)
State income tax expense		564			286
Total income tax expense (benefit)	$	2,209		$	(156)
Effective tax rate		31.8	%		3.2	%

The effective rates for 2020 and 2019 varied from the statutory federal tax rate primarily due to state income taxes and certain non-deductible expenses including a per diem pay structure for our drivers.  Due to the partially nondeductible effect of per diem pay, the Company’s tax rate will change based on fluctuations in earnings (losses) and in the number of drivers who elect to receive this pay structure.  Generally, as pretax income or loss increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pretax income or loss, while in periods where earnings are at or near breakeven the impact of the per diem program on our effective tax rate can be significant.  During 2020, the Company benefited from the Coronavirus Aid, Relief and Economic Security Act, which allowed a five year federal net operating loss carryback for federal income tax purposes to tax periods where the federal rate was 35%.  Additionally, during 2020 and 2019 the Company’s tax rate was affected by vesting of equity-based compensation at a lower stock price than the price at which it was granted, as well as non-deductible officer compensation, resulting in an increase to tax expense and impacting the effective tax rate.