FEDERAL AND STATE INCOME TAXES

12 Months Ended

Dec. 31, 2021

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,
	2021		2020
Deferred tax assets:	(in thousands)
Operating lease liabilities	$	5,861	$	7,170
Accrued expenses not deductible until paid		5,479		6,105
Finance lease obligations		1,214		794
Goodwill and intangible assets		1,093		1,264
Equity incentive compensation		280		204
Revenue recognition		245		238
Net operating loss carry forwards		164		298
Allowance for doubtful accounts		228		225
Other		—		5
Total deferred tax assets	$	14,564	$	16,303
Deferred tax liabilities:
Tax over book depreciation	$	(28,577)	$	(30,315)
Operating leases - right of use assets		(5,755)		(7,075)
Prepaid expenses deductible when paid		(2,146)		(2,327)
Other		—		—
Total deferred tax liabilities		(36,478)		(39,717)
Net deferred tax liabilities	$	(21,914)	$	(23,414)

The Company has certain state net operating loss carryovers of approximately $0.2 million that expire in varying years through 2040.  The Company expects to fully utilize its tax attributes in future years before they expire.

The Company is subject to taxation in the U.S., including various U.S. states.  As of December 31, 2021, tax years for 2018, 2019, and 2020 are subject to examination by the tax authorities.  With few exceptions, as of December 31, 2021, the Company is no longer subject to U.S. federal, state, or local examinations by tax authorities for years before 2018.

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

	Year Ended December 31,
	2021		2020
Current:	(in thousands)
Federal	$	8,251	$	2,410
State		1,537		211
Total current		9,788		2,621
Deferred:
Federal		(1,626)		(765)
State		126		353
Total deferred		(1,500)		(412)
Total income tax expense	$	8,288	$	2,209

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

	Year Ended December 31,
	2021			2020
	(dollars in thousands)
Income tax expense at statutory federal rate	$	6,942		$	1,461
Federal income tax effects of:
State income tax benefit		(323)			(44)
Per diem and other nondeductible meals and entertainment		1			378
Taxes related to prior years		(22)			346
Non-deductible compensation		135			219
Loss carryback rate benefit		—			(628)
Other		(108)			(87)
Federal income tax expense		6,625			1,645
State income tax expense		1,663			564
Total income tax expense	$	8,288		$	2,209
Effective tax rate		25.1	%		31.8	%

The effective rates for 2021 and 2020 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.  During 2021, the Company benefited from the Consolidated Appropriations Act, 2021 that increased the deduction for the cost of food or beverage provided by a restaurant to be 100% deductible in 2021 and 2022.  The IRS issued further guidance that confirmed such benefit applies to the meal portion of 2021 and 2022 per diem rates or allowances, which allowed the Company to fully deduct its per diem pay in 2021.  Historically, due to the partially nondeductible effect of per diem pay, the Company’s tax rate would change based on fluctuations in earnings 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.  We did not experience such an impact from per diem in 2021, and do not expect to experience such an impact in 2022, given the full deductibility allowance mentioned above.  Additionally, during 2021 the Company’s tax rate was affected by vesting of equity-based compensation at a higher stock price than the price at which it was granted, which resulted in a decrease to tax expense; however, this was more than offset by non-deductible officer compensation, resulting in an increase to tax expense and impacting the effective tax rate.