INCOME TAXES

3 Months Ended

Mar. 31, 2023

INCOME TAXES

INCOME TAXES

5.    INCOME TAXES

The Company’s effective tax rate on the net income before income taxes was 18.9% and 43.2% for the three months ended March 31, 2023 and 2022, respectively.  

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

	Three Months Ended		Three Months Ended
	March 31, 2023		March 31, 2022
U.S. statutory federal tax rate	21.0	%	21.0	%
State tax, net of federal tax	0.1	%	3.2	%
Stock options	(1.0)	%	5.2	%
Rate change	—	%	8.1	%
Out of Period Adjustment	—	%	4.0	%
Return-to-provision and other	(1.2)	%	1.7	%
Effective tax rate	18.9	%	43.2	%

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. 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 March 31, 2023 and 2022.  As a result of this review, the Company concluded that a $283 thousand valuation allowance is needed for state net operating losses as of March 31, 2023 and December 31, 2022.

The effective tax rate for the three months ended March 31, 2023 was different from the federal statutory rate due primarily to stock-based compensation and compensation limits under IRC Section 162(m).  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’s state income tax rate is lower for the three months ended March 31, 2023 as compared to March 31, 2022.