Income Taxes Level 1 (Notes)

6 Months Ended

Jun. 30, 2024

Income Tax Disclosure [Abstract]

Income Tax Disclosure

Income Taxes

Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items, which are recorded in the period in which they occur. Discrete items include, among others, events such as changes in estimates due to the finalization of tax returns, tax audit settlements, expiration of statutes of limitation, and increases or decreases in valuation allowances on deferred tax assets. Our effective tax rate was 25.3% and 24.5% for the three months ended June 30, 2024 and 2023, respectively. Our effective tax rate was 24.0% and 24.5% for the six months ended June 30, 2024 and 2023, respectively. The higher effective tax rate for the three months ended June 30, 2024 was primarily due to lower excess tax benefits recognized on the settlement of employee share-based awards. The effective tax rate for the three and six months ended June 30, 2024 was higher than the federal statutory tax rate of 21.0% primarily due to state tax expense.

We actively participate in tax credit equity investments for projects eligible to receive renewable energy tax credits. These investments, accounted for under the equity method, are recorded in Deferred charges and other assets, net of reserves on our unaudited Condensed Consolidated Balance Sheet. Upon realization, tax credits associated with these investments are recognized as a reduction of tax expense. This reduction is offset by amortization of the investment in proportion to the tax benefits received during the period under the proportional amortization method. During 2024, we recognized investment tax credits and other tax benefits totaling $10.7 million and amortized the equity investment by $10.7 million to reflect the realization of these benefits. This amortization is reflected within the Provision for income taxes in our unaudited Condensed Consolidated Statement of Operations.

Unrecognized Tax Benefits

As of June 30, 2024, the total amount of our unrecognized tax benefits was $1.3 million and the total amount of our accrued interest was approximately $1.0 million.

The federal statutes of limitation have expired for all tax years prior to 2020, and we are not currently under audit by the IRS. However, pursuant to the 2017 Tax Cuts and Jobs Act, the statute of limitations on the transition tax for the 2017 tax year does not expire until September 2024. Various state and foreign jurisdictions are auditing years 2013 through 2021. We believe that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease by $1.3 million within the next twelve months as a result of concluding various state tax matters