Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.1
Income Taxes
 12 Months Ended
Dec. 31, 2022
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) 2022 2021
Deferred income tax assets:    
Inventory valuation reserves $ 963  $ 310 
Inventory capitalization 907  1,207 
Accrued bonus 150  680 
State net operating loss carryforwards 1,572  1,606 
Federal net operating loss carryforwards 1,088  890 
Lease liabilities 7,744  8,069 
Accrued Federal Insurance Contributions Act ("FICA") deferral —  155 
Interest Limitation Carryforwards 555  — 
Intangible asset basis differences 3,262  2,980 
Other 1,192  550 
Total deferred income tax assets 17,433  16,447 
Federal & State valuation allowance (1,371) (3,700)
       Total net deferred income tax assets 16,062  12,747 
Deferred income tax liabilities:
Fixed asset basis differences 7,184  7,276 
Prepaid expenses 418  381 
Lease assets 7,107  7,523 
Total deferred income tax liabilities 14,709  15,180 
Deferred income taxes, net $ 1,353  $ (2,433)

Significant components of the provision for income taxes are as follows:
(in thousands) 2022 2021
Current:    
Federal $ (189) $ 6,786 
State 199  538 
Total current 10  7,324 
Deferred:  
Federal (3,657) (1,943)
State (564) (128)
Total deferred (4,221) (2,071)
Total $ (4,211) $ 5,253 
The reconciliation of income tax computed at the U. S. federal statutory tax rates to income tax expense is:
(in thousands) 2022 2021
Amount % Amount %
Tax at U.S. statutory rates $ 3,750  21.0  % $ 5,354  21.0  %
State income taxes, net of federal tax benefit
 226  1.3  % 371  1.5  %
Federal and State valuation allowance (2,366) (13.2) % (539) (2.1) %
Stock option compensation (173) (1.0) % (196) (0.8) %
Executive compensation limitation —  —  % 59  0.2  %
Transaction costs —  —  % 134  0.5  %
Tax Benefits Associated with Palmer Closure (5,707) (32.0) % —  —  %
Other nondeductible expenses 69  0.4  % 51  0.2  %
Other, net (10) (0.1) % 19  0.1  %
Total $ (4,211) (23.6) % $ 5,253  20.6  %
The Company's effective tax rate for 2022 was less than the U.S. statutory rate of 21% primarily driven by tax benefits associated with losses on our investment in Palmer of Texas Tanks, Inc. and its ultimate wind down and closure and the release of valuation allowances on certain deferred tax assets, partially offset by state taxes. The tax benefits associated with the investment in Palmer relate to a deduction claimed for the tax basis in the Company’s stock in Palmer of Texas Tanks, Inc.

The Company made income tax payments of $7.8 million and $1.6 million in 2022 and 2021, respectively. The Company has $5.2 million of U.S. Federal net operating loss carryforwards and $2.6 million of interest limitation carryforwards at the end of 2022 compared to $4.2 million of U.S. Federal net operating loss carryforwards and no interest limitation carryforwards at the end of 2021. The majority of our 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 $37.2 million and $36.2 million at the end of 2022 and 2021, respectively. The majority of these losses will expire between the years of 2023 and 2040, while certain losses are not subject to expiration.

In prior years, primarily due to the historical losses, the Company established valuation allowances against certain deferred tax assets. At each reporting date, the Company considers new and historical evidence, both positive and negative, that could affect its view of the future realization of its deferred tax assets. When the Company demonstrates that it can generate taxable income on a sustained basis, its conclusion can change regarding the need for a valuation allowance against its deferred tax assets. During the tax year ended December 31, 2022, the Company continued to generate pre-tax profits and as a result of sustained profitability evidenced by a strong earnings history and additional positive evidence, the Company determined it was more likely than not it would be able to support realization of certain deferred tax assets and released valuation allowances on deferred tax assets of $2.4 million. The remaining valuation allowances relate to certain U.S. state deferred tax assets that are not considered realizable based on the assessment of all available evidence as of December 31, 2022.

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 2019 or state examinations for years before 2018.

The Company had no uncertain tax position activity during 2022 or 2021. 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 2022.

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law, which, among other things, implemented a CAMT of 15 percent on book income of certain large corporations, a one percent excise tax on net stock repurchases and several tax incentives to promote clean energy. The provision pertaining to an excise tax on corporate stock repurchases imposes a nondeductible one percent excise tax on a publicly traded corporation for the net value of certain stock that the corporation repurchases. The value of the repurchases subject to the tax is reduced by the value of any stock issued by the corporation during the tax year, including stock issued or provided to the employees. The CAMT imposes a minimum tax on net income adjusted for certain items prescribed by the legislation. Both the CAMT and the excise tax provisions of this
legislation are effective for tax years beginning after December 31, 2022. Although management is currently assessing the impact of the law change and awaiting guidance from the Department of Treasury, the Company anticipates being subject to the new excise tax on share repurchases, but does not believe that it will have a material impact on its consolidated financial statements.