NOTE 9 — INCOME TAXES

Tax Expense (Benefit) and Tax Rate

For the three months ended June 30, 2023, the Company recognized income tax expense of $3.0 million. Primarily as a result of changes in our valuation allowance on our deferred tax assets, our effective tax rate for the three months ended June 30, 2023 is not meaningful. For the three months ended June 30, 2022, the Company recognized income tax expense of $31.1 million for an effective tax rate of 20.1%.

For the six months ended June 30, 2023, the Company recognized income tax expense of $11.6 million for an effective tax rate of 45.6%. For the six months ended June 30, 2022, the Company recognized income tax expense of $30.4 million for an effective tax rate of 20.1%. For the three and six months ended June 30, 2023, the Company’s effective tax rate differed from the statutory Federal tax rate primarily by the impact of state income taxes, nondeductible compensation, and adjustments to the valuation allowance. For the three and six months ended June 30, 2022, the Company’s effective tax rate differed from the statutory Federal tax rate primarily by the impact of state income taxes and adjustments to the valuation allowance.

Calculation of Interim Provision for Income Tax.

Historically, the Company has calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year to income (loss) for the interim period. In the second quarter of 2023, the Company concluded that it could not calculate a reliable estimate of the annual effective tax rate. Accordingly, the Company computed the effective tax rate for the six-month period ending June 30, 2023 using actual results.

Valuation Allowance

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 deferred tax assets, the Company considers whether it is more likely than not that some portion or all of them will not be realized.

As of June 30, 2023 and December 31, 2022, the valuation allowance was $19.8 million and $15.3 million, respectively, and relates primarily to state net operating losses and the disallowed interest expense limitation carryover.

Income Taxes Receivable, Refunds and Payments

As of June 30, 2023, the Company has a federal income tax receivable of $1.7 million and state income tax receivable of $0.2 million. As of December 31, 2022, the Company did not have any outstanding current income taxes receivable. During the three and six months ended June 30, 2023, the Company did not receive any income tax refunds and made federal income tax payments of $2.2 million and state income tax payments of $0.3 million. During the three and six months ended June 30, 2022, the Company did not receive any income tax refunds or make any income tax payments of significance.

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