NOTE 13 — INCOME TAXES

Income Tax Expense (Benefit)

Components of income tax expense (benefit) were as follows (in thousands):

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Reconciliation

The reconciliation of income taxes computed at the U.S. federal statutory tax rate to the Company’s income tax expense (benefit) is as follows (in thousands):

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The Company’s effective tax rate for the years 2022, 2021 and 2020 differed from the applicable federal statutory rate of 21.0% primarily due to adjustments in the valuation allowance on deferred tax assets, which is discussed below, and the impact of state income taxes. As a result, the effective tax rate for 2022 and 2021 is 18.8% and 16.3%, respectively, while the effective tax rate for the year 2020 is not meaningful.

Deferred Tax Assets and Liabilities

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 were as follows (in thousands):

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Income Taxes Receivable, Refunds and Payments

As of December 31, 2022 and 2021, the Company did not have any current income taxes receivable. During the year ended December 31, 2022 the Company made $8.2 million in income tax payments, and during the year ended December 31, 2021, the Company did not make any tax payments of significance.

Net Operating Loss and Interest Expense Limitation Carryover

The table below presents the details of the Company’s net operating loss and interest expense limitation carryover as of December 31, 2022 (in thousands):

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Valuation Allowance

During 2022, the Company’s valuation allowance decreased $9.0 million primarily due to the utilization of part of the Company’s disallowed interest expense limitation carryover. Deferred tax assets are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce tax deductions in future periods. The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or net operating losses are deductible. In assessing the need for a valuation allowance on the Company’s deferred tax assets, the Company considers whether it is more likely than not that some portion or all of them will not be realized.

The Company assesses available positive and negative evidence regarding its ability to realize its deferred tax assets including reversing temporary differences and projections of future taxable income during the periods in which those temporary differences become deductible, as well as negative evidence such as historical losses. Assumptions about the Company’s future taxable income are consistent with the plans and estimates used to manage the Company’s business. The Company showed positive income in 2022 and continues to project similar results into the future. Based on this, the Company concluded that there is enough positive evidence to outweigh any negative evidence although any changes in forecasted taxable income could have a material impact on this analysis. The portion of the valuation allowance remaining relates to state net operating losses and the disallowed interest limitation carryover under IRC section 163(j). As of December 31, 2022, the Company’s valuation allowance was $15.3 million.

Years Open to Examination

The tax years from 2019 through 2022 remain open to examination by the tax jurisdictions to which the Company is subject.