INCOME TAXES

9 Months Ended

Sep. 30, 2022

INCOME TAXES

INCOME TAXES

5.    INCOME TAXES

The Company’s effective tax rate on the net income (loss) before income taxes was 1,522.4% and 14.1% for the three months ended September 30, 2022 and 2021, respectively.  The Company’s effective tax rate on the net income before income taxes was (19.8)% and 24.1% for the nine months ended September 30, 2022 and 2021, respectively

A reconciliation of the federal statutory corporate tax rate to the Company’s effective tax rate is as follows:

	Nine Months Ended		Nine Months Ended
	September 30, 2022		September 30, 2021
U.S. statutory federal tax rate	21.0	%	21.0	%
State tax, net of federal tax	0.6	%	5.8	%
Stock options	8.9	%	(0.1)	%
State tax nexus study	(89.5)	%	—	%
State rate change	34.3	%	—	%
Other	4.9	%	(1.8)	%
PPP loan	—	%	(0.8)	%
Effective tax rate	(19.8)	%	24.1	%

The Company uses the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes (“Topic 740”), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified. As a result, the Company reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets to evaluate the need for a valuation allowance at September 30, 2022 and 2021.

The effective tax rate for the nine months ended September 30, 2022 was different from the federal statutory rate due primarily to stock-based compensation, an out of period adjustment due to compensation limits under IRC Section 162(m), and a change in the estimate of the apportionment of earnings across various state jurisdictions.  In the third quarter of 2022, the Company, in conjunction with its state and local tax advisors, began a thorough analysis of the income tax imposition and apportionment statutes, including the application of Public Law 86-272.  As a result of this analysis, the Company revised the estimates of deferred state income asset and current state income tax expense. The Company recorded a state income tax benefit of approximately $7 million in the third quarter of 2022.  The effective tax rate for the nine months ended September 30, 2021 was different from the federal statutory rate due primarily to the apportionment of earnings across various state jurisdictions.