Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The following table sets forth components of income before income taxes: 
Year Ended December 31,
  2023 2022 2021
Domestic $ 30,211  $ 98,004  $ 74,256 
Foreign 8,058  7,715  3,888 
Income before income taxes $ 38,269  $ 105,719  $ 78,144 
The components of the provision (benefit) for income taxes were as follows: 
Year Ended December 31,
  2023 2022 2021
Current income tax provision (benefit):          
Federal $ 34  $ (722) $ (779)
State 372  733  1,779 
Foreign 1,255  1,202  844 
Total current 1,661  1,213  1,844 
Deferred income tax (benefit) provision:
Federal (22,677) 2,528  (8,025)
State (5,657) 2,300  3,561 
Foreign 1,038  1,129  573 
Total deferred (27,296) 5,957  (3,891)
Total income tax (benefit) provision $ (25,635) $ 7,170  $ (2,047)
Our deferred tax assets and liabilities result primarily from temporary differences between financial reporting and tax recognition of depreciation, energy efficiency, sale-leasebacks and other accruals, and net operating loss carryforwards.
Deferred tax assets and liabilities consisted of the following:
December 31,
  2023 2022
Deferred income tax assets:      
Compensation accruals $ 4,137  $ 3,306 
Reserves 5,906  4,111 
Sale-leasebacks and other accruals 49,300  32,945 
Net operating losses 28,565  18,395 
Interest limitation 8,273  — 
Energy efficiency 82,827  71,433 
Deferred revenue 2,114  2,132 
Gross deferred income tax assets 181,122  132,322 
Valuation allowance (3,704) (3,621)
Total deferred income tax assets $ 177,418  $ 128,701 
Deferred income tax liabilities:
Depreciation $ (137,966) $ (122,762)
Deferred effect of derivative liability (2,166) (1,640)
Canadian capital cost, allowance and amortization (5,738) (3,098)
Italy intangibles (1,324) — 
United Kingdom goodwill amortization (852) (952)
Outside basis difference (6,599) (5,038)
Interest rate swaps (841) (1,347)
Total deferred income tax liabilities (155,486) (134,837)
Deferred income tax assets (liabilities), net $ 21,932  $ (6,136)
Our valuation allowance related to the following items:
December 31,
2023 2022
Interest rate swaps (1)
$ —  $ 49 
Foreign net operating loss (2)
3,702  3,555 
State net operating loss at one of our subsidiaries (3)
2  17 
Total valuation allowance $ 3,704  $ 3,621 
(1) The deferred tax asset represents a future capital loss which can only be recognized for income tax purposes to the extent of capital gain income. Although we anticipate sufficient future taxable income, it is more likely than not that it will not be the appropriate character to allow for the recognition of the future capital loss.
(2) It is more likely than not that we will not generate sufficient taxable income at the foreign subsidiary level to utilize the net operating loss.
(3) It is more likely than not that we will not generate sufficient taxable income at the subsidiary level to utilize the net operating loss.
As of December 31, 2023, we had the following tax loss and credit carryforwards to offset taxable income in prior and future years:
Amount Expiration Period
Federal net operating loss carryforwards $ 69,130  Indefinite
State net operating loss carryforwards 91,411   Various
Canadian net operating loss carryforwards 32,527  2028 through 2043
Ireland net operating loss carryforwards 324  Indefinite
Spain net operating loss carryforwards 2,302  Indefinite
Total tax loss carryforwards $ 195,694 
Federal Energy Investment and Production tax credit carryforward $ 82,768 
2030 through 2043
The provision for income taxes is based on the various rates set by federal and local authorities and is affected by permanent and temporary differences between financial accounting and tax reporting requirements.
The principle reason for the difference between the statutory rate and the estimated annual effective rate for 2023 were the effects of tax deductions related to the Section 179D Commercial Buildings Energy-Efficiency deduction, investment tax credits we are entitled from solar plants which have been placed into service during 2023 and, the deferred benefit for a reduction in future state taxes. The Section 179D deduction available for 2023 was substantially higher compared to prior years because of enhancements to Section 179D in the IRA. In addition, we were able to identify and document a large Section 179D eligible from a prior year that had not previously been available. We also benefited from the deferred effect of a reduction in our future state tax rates resulting from apportionment changes in a major state.
The principal reasons for the difference between the statutory rate and the estimated annual effective rate for 2022 were the effects of investment tax credits we are entitled from solar plants which have been placed into service during 2022, the tax deductions related to the Section 179D Commercial Buildings Energy-Efficiency deduction, the benefit of disqualifying dispositions on certain employee stock options and favorable tax basis adjustments on certain partnership flip transactions.
The investment tax credits and production tax credits we may be entitled to fluctuate from year to year based on the cost of the renewable energy plants we place in service and production levels at facilities we own in that year.
On December 27, 2020 the President signed the Consolidated Appropriations Act, 2021 H.R. 133, which among other things made the Section 179D Energy Efficient Commercial Building Deduction permanent. The Section had previously been extended for years up to December 31, 2020. That Act also made changes to the way in which the deduction is calculated including adding an inflation adjustment and an update of the American Society of Heating, Refrigerating and Air-Conditioning Engineers (“ASHRAE”) Standard by which energy improvements are measured. On December 23, 2022, the IRS issued Announcement 2023-1 which clarified the ASHRAE energy efficiency standards which will be applied to projects placed in service for 2021 and 2022.
The following is a reconciliation of the effective tax rates:
Year Ended December 31,
  2023   2022   2021
Income before (benefit) provision for income taxes $ 38,269    $ 105,719  $ 78,144 
Federal statutory tax expense $ 8,036    $ 22,201  $ 16,410 
State income taxes, net of federal benefit (774)   3,844  2,648 
Net state impact of deferred rate change (3,213)   (575) (502)
Nondeductible expenses 667    2,198  2,572 
Impact of reserve for uncertain tax positions (200) 59  286 
Stock-based compensation expense 4    353  (4,618)
Energy efficiency preferences (30,359)   (21,410) (17,639)
Foreign items and rate differential 458    37  4 
Adjustment State Taxes (66) —  — 
Redeemable non-controlling interests (227) (411) (2,546)
Valuation allowance 81  (159) 337 
Miscellaneous (42)   1,033  1,001 
Total income tax (benefit) provision $ (25,635)   $ 7,170    $ (2,047)
Effective tax rate:          
Federal statutory rate expense 21.0  % 21.0  % 21.0  %
State income taxes, net of federal benefit (2.0) % 3.6  % 3.4  %
Net state impact of deferred rate change (8.4) % (0.5) % (0.6) %
Nondeductible expenses 1.7  % 2.1  % 3.3  %
Impact of reserve for uncertain tax positions (0.5) % 0.1  % 0.4  %
Stock-based compensation expense —  % 0.3  % (5.9) %
Energy efficiency preferences (79.3) % (20.3) % (23.2) %
Foreign items and rate differential 1.2  % —  % —  %
Adjustment State Taxes (0.2) % —  % —  %
Redeemable non-controlling interests (0.6) % (0.4) % (3.3) %
Valuation allowance 0.2  % (0.2) % 0.4  %
Miscellaneous (0.1) % 1.1  % 1.9  %
Effective tax rate (67.0) % 6.8  % (2.6) %
 
The following table provides a reconciliation of gross unrecognized tax benefits which are included in other liabilities within the consolidated balance sheets:
Year Ended December 31,
  2023   2022
Balance, beginning of year $ 900  $ 900 
Additions for current year tax positions 100  — 
Reductions of prior year tax positions (200) — 
Balance, end of year $ 800  $ 900 
The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods was $310 as of December 31, 2023 and $450 as of December 31, 2022 (both net of the federal benefit on state amounts).
We do not accrue U.S. tax for foreign earnings that we consider to be permanently reinvested outside the United States. Consequently, we have not provided any withholding tax on the unremitted earnings of our foreign subsidiaries. As of December 31, 2023 and 2022, we estimated that there were no earnings for which repatriation tax has not been provided.
The tax years 2020 through 2023 remain open to examination by major taxing jurisdictions. We recognize interest and penalties related to uncertain tax positions as components of our income tax provision (benefit) in our consolidated statements of income. We increased income tax expense for these items by $22 in 2023, $22 in 2022, and $14 in 2021.