INCOME TAXES

12 Months Ended

Dec. 31, 2023

INCOME TAXES

INCOME TAXES

11.  INCOME TAXES

The provision (benefit) for income taxes consists of the following:

	For the Years Ended December 31,
	2023		2022		2021
Current tax provision (benefit)
Federal	$	33,734	$	1,448,000	$	20,041,644
State		(65,529)		(8,711,302)		8,079,555
Total current provision (benefit)		(31,795)		(7,263,302)		28,121,199
Deferred tax provision (benefit)
Federal		(1,855,875)		3,717,559		(6,719,211)
State		(17,491)		3,629,613		(2,515,418)
Total deferred tax provision (benefit)		(1,873,366)		7,347,172		(9,234,629)
Total income tax provision	$	(1,905,161)	$	83,870	$	18,886,570

As of December 31, 2023, the Company had federal net operating losses of $20.8 million with no expiration date and state net operating losses of $4.9 million which will begin to expire in 2029.

Utilization of the federal net operating loss carry forwards and credits may be subject to a substantial annual limitation due to the ownership change limitations under Internal Revenue Code Section 382.  State net operating losses and credits are subject to limitations under similar rules.

Deferred taxes are provided for those items reported in different periods for income tax and financial reporting purposes.  The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:

	December 31,
	2023		2022
Deferred tax assets
Net operating loss carry forwards	$	4,654,612	$	5,053,102
Accrued expenses and reserves		782,234		713,429
Employee stock option expense		13,311		—
Inventories		299,276		159,405
Deferred income – TIA contract		14,742,111		15,860,880
Capital loss		188,270		67,962
Interest expense limitation		—		24,572
Deferred tax assets		20,679,814		21,879,350
Deferred tax liabilities
Unrealized gains/losses		1,194,734		(1,028,232)
Property, plant, and equipment		(13,199,805)		(14,049,742)
Deferred tax liabilities		(12,005,071)		(15,077,974)
Net deferred assets		8,674,743		6,801,376
Valuation allowance		(282,713)		(282,713)
Net deferred tax assets	$	8,392,030	$	6,518,663

*Certain totals may not reconcile due to rounding.

Deferred income tax calculations reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss carry forwards, and are stated at the U.S. tax rate of 21%. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

Deferred tax assets are periodically reviewed for realizability.  The Company establishes a valuation allowance for its net deferred tax asset when future taxable income is not reasonably assured.  As of December 31, 2023 and 2022, the Company determined that a $283 thousand valuation allowance was needed for the state net operating losses.  

Under the Tax Cuts and Jobs Act, net operating losses incurred after December 31, 2017 can only offset 80% of taxable income.  However, these net operating losses may be carried forward indefinitely instead of limited to twenty years under previous tax law. Carryback of these losses is no longer permitted.

The CARES Act temporarily removed the 80% of taxable income limitation to allow NOL carryforwards to fully offset income.  For tax years beginning after 2021, the Company can take: (1) a 100% deduction of NOLs arising in tax years prior to 2018, and (2) a deduction limited to 80% of modified taxable income for NOLs arising in tax years after 2017.

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

	December 31,
	2023		2022		2021
U.S. statutory federal tax rate	21.0		21.0	%	21.0	%
State tax, net of federal tax	0.8		1.0		6.4
Change in valuation allowance	—		5.5		—
Valuation Allowance	(0.2)		4		—
Stock options	—		10.8		(0.1)
Section 162(m); Limit on Compensation	(0.2)		30.9
State tax nexus study
State rate change	—		(75.1)		—
PPP loan	—		—		(0.4)
Return-to-provision and other	0.1		3.7		(1.7)
Effective tax rate	21.5	%	1.6	%	25.2	%

During 2022, the Company engaged tax consultants to perform a nexus study in order to determine if its activities in certain states were subject to previously estimated tax liabilities.  As a result of the study, the Company determined that its activities in those states are protected by P.L. 86-272 and revised its estimates for state taxes.  The Company has further determined that it is more likely than not that the various state jurisdictions will agree that the Company’s activities are protected under P.L. 86-272 and the revised estimates for refund applications are appropriate.

The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions.  The Company’s federal income tax returns for all tax years ended on or after December 31, 2008, remain subject to examination by the Internal Revenue Service.  The Company’s state and local income tax returns are subject to examination by the respective state and local authorities over various statutes of limitations, most ranging from three to five years from the date of filing.