Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.1
Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows at the respective year ends: 
(in thousands) 2021 2020
Deferred income tax assets:    
Inventory valuation reserves $ 310  $ 176 
Inventory capitalization 1,207  1,120 
Accrued bonus 680  328 
State net operating loss carryforwards 1,606  1,669 
Federal net operating loss carryforwards 890  — 
Lease liabilities 8,069  7,484 
Accrued Federal Insurance Contributions Act ("FICA") deferral 155  299 
Intangible asset basis differences 2,980  3,706 
Other 550  534 
Total deferred income tax assets 16,447  15,316 
Federal & State valuation allowance (3,700) (4,243)
       Total net deferred income tax assets 12,747  11,073 
Deferred income tax liabilities:
Fixed asset basis differences 7,276  5,562 
Prepaid expenses 381  276 
Lease assets 7,523  7,067 
Interest rate swap —  68 
Other —  57 
Total deferred income tax liabilities 15,180  13,030 
Deferred income taxes, net $ (2,433) $ (1,957)

Significant components of the provision for income taxes are as follows:
(in thousands) 2021 2020
Current:    
Federal $ 6,786  $ (6,024)
State 538  23 
Total current 7,324  (6,001)
Deferred:    
Federal (1,943) 1,011 
State (128) 284 
Total deferred (2,071) 1,295 
Total $ 5,253  $ (4,706)
The reconciliation of income tax computed at the U. S. federal statutory tax rates to income tax expense is:
(in thousands) 2021 2020
Amount % Amount %
Tax at U.S. statutory rates $ 5,354  21.0  % $ (6,714) 21.0  %
State income taxes, net of federal tax benefit
 371  1.5  % 73  (0.2) %
Federal and State valuation allowance (539) (2.1) % 2,541  (7.9) %
CARES Act carryback benefits —  —  % (1,123) 3.5  %
Stock option compensation (196) (0.8) % 65  (0.2) %
Executive compensation limitation 59  0.2  % 280  (0.9) %
Transaction costs 134  0.5  % —  —  %
Other nondeductible expenses 51  0.2  % 35  (0.1) %
Other, net 19  0.1  % 137  (0.5) %
Total $ 5,253  20.6  % $ (4,706) 14.7  %
The Company's effective tax rate for 2021 was less than the U.S. statutory rate of 21% primarily driven by windfall tax benefits associated with share-based compensation and the release of valuation allowances on certain deferred tax assets partially offset by state taxes and transaction costs, net of federal benefit.
The Company made income tax payments of $1.6 million and $16,000 in 2021 and 2020, respectively. The Company has $4.2 million of U.S. Federal net operating loss carryforwards and no interest limitation carryforwards at the end of 2021 compared with no U.S. Federal net operating loss carryforwards or interest limitation carryforwards at the end of 2020. The U.S. Federal net operating loss carryforwards were acquired in the DanChem acquisition and are subject to certain limitations under IRC Section 382. However, the Company believes that these losses are more likely than not to be utilized. In addition, on a gross basis the Company had state operating loss carryforwards of $36.2 million and $39.4 million at the end of 2021 and 2020, respectively. The majority of these losses will expire between the years of 2022 and 2039, while certain losses are not subject to expiration.
During 2021, the Company recognized a combined U.S. federal and state valuation allowance of $3.7 million because it is more likely than not that the underlying deferred tax assets will not be realized. This represents a $0.5 million decrease year over year, primarily driven by deferred tax liabilities acquired in the DanChem acquisition.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company is no longer subject to U.S. federal examinations for years before 2018 or state examinations for years before 2017.
The Company had no uncertain tax position activity during 2021 or 2020. The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in the provision for income taxes. The Company had no accruals for uncertain tax positions including interest and penalties at the end of 2021.