Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The following table sets forth components of income before income taxes: 
Year Ended December 31,
  2020 2019 2018
Domestic $ 52,595  $ 34,700  $ 46,542 
Foreign 3,833  1,853  (4,152)
Income before income taxes $ 56,428  $ 36,553  $ 42,390 
The components of the (benefit) provision for income taxes were as follows: 
Year Ended December 31,
  2020 2019 2018
Current income tax (benefit) provision:          
Federal $ (4,566) $ 109  $ (1,888)
State 1,522  474  1,176 
Foreign 298  (1) 30 
Total current (2,746) 582  (682)
Deferred income tax provision (benefit):
Federal 3,655  (4,794) 2,662 
State 2,207  202  2,530 
Foreign (3,610) 262  303 
Total deferred 2,252  (4,330) 5,495 
Total income tax (benefit) provision $ (494) $ (3,748) $ 4,813 
Our deferred tax assets and liabilities result primarily from temporary differences between financial reporting and tax recognition of depreciation, energy efficiency and net operating loss carryforwards.
Deferred tax assets and liabilities consisted of the following:
December 31,
  2020 2019
Deferred income tax assets:      
Compensation accruals $ 2,485  $ 1,745 
Reserves 3,861  2,739 
Other 15,621  9,398 
Net operating losses 14,435  14,355 
Interest rate swaps 2,587  1,604 
Energy efficiency 42,046  35,939 
Interest limitation —  5,148 
Deferred revenue 1,270  1,635 
Gross deferred income tax assets 82,305  72,563 
Valuation allowance (3,877) (8,583)
Total deferred income tax assets $ 78,428  $ 63,980 
Deferred income tax liabilities:
Depreciation $ (66,694) $ (51,579)
Deferred effect of derivative liability (284) (328)
Canadian capital cost, allowance and amortization (2,195) (2,919)
United Kingdom goodwill amortization (732) (781)
Outside basis difference (10,886) (8,488)
Total deferred income tax liabilities (80,791) (64,095)
Deferred income tax liabilities, net $ (2,363) $ (115)
Our valuation allowance related to the following items:
December 31,
2020 2019
Interest rate swaps (1)
$ 106  $ 122 
Foreign net operating loss (2)
3,479  8,169 
State net operating loss at one of our subsidiaries (3)
292  292 
Total valuation allowance $ 3,877  $ 8,583 
(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, 2020, 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 $ 22,600  Indefinite
State net operating loss carryforwards 40,536 
 Various
Canadian net operating loss carryforwards 23,085 
2028 through 2040
United Kingdom net operating loss carryforwards 4,605  Indefinite
Spain net operating loss carryforwards 2,638 
Indefinite
Total tax loss carryforwards $ 93,464 
Federal Energy Investment and Production tax credit carryforward $ 42,046 
2030 through 2040
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 principal reasons for the difference between the statutory rate and the estimated annual effective rate for 2020 were the effects of investment tax credits we are entitled from solar plants which have been placed into service during 2020, the tax deductions related to the Section 179D deduction, the release of the previously established valuation allowance on the Canadian tax assets and the benefit of employee stock option compensation. We additionally realized tax rate benefits associated with net operating loss carrybacks made possible by the passing of the CARES Act on March 27, 2020 and tax basis adjustments on certain partnership flip transactions.
The principal reasons for the difference between the statutory rate and the estimated annual effective rate for 2019 related to the recognition of a tax benefit of $29.7 million associated with energy related credits and deductions available under the U.S. Tax Code for 2019 as well as a deduction available under Section 179D of the Tax Code for 2019 and 2018. In December 2019, the Code Section 179D Commercial Buildings Energy Efficiency Tax Deduction was retroactively extended for 2018 and 2019, and through the end of 2020. Because of the timing of the extension the impact of the 2018 Section 179D deduction was not reflected in the 2018 tax provision but was instead reflected in 2019.
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 the deduction is calculated including adding an inflation adjustment and an update of the American Society of Heating, Refrigerating and Air-Conditioning Engineers Standard by which energy improvements are measured.
The following is a reconciliation of the effective tax rates:
Year Ended December 31,
  2020   2019   2018
Income before (benefit) provision for income taxes $ 56,428    $ 36,553  $ 42,390 
Federal statutory tax expense $ 11,850    $ 7,676  $ 8,902 
State income taxes, net of federal benefit 2,257    2,140  3,071 
Net state impact of deferred rate change (29)   (53) 174 
Non deductible expenses 987    150  982 
Impact of reserve for uncertain tax positions (124) (925) 879 
Stock-based compensation expense (2,922)   (169) (441)
Energy efficiency preferences (8,595)   (12,699) (8,636)
Foreign items and rate differential 160    56  (41)
Redeemable non-controlling interests (767) 1,101  70 
Valuation allowance (4,308) 205  641 
Miscellaneous 997    (1,230) (788)
Total income tax (benefit) provision $ (494)   $ (3,748)   $ 4,813 
Effective tax rate:          
Federal statutory rate expense 21.0  % 21.0  % 21.0  %
State income taxes, net of federal benefit 4.0  % 5.9  % 7.2  %
Net state impact of deferred rate change (0.1) % (0.1) % 0.4  %
Non deductible expenses 1.7  % 0.4  % 2.3  %
Impact of reserve for uncertain tax positions (0.2) % (2.5) % 2.1  %
Stock-based compensation expense (5.2) % (0.5) % (1.0) %
Energy efficiency preferences (15.2) % (34.7) % (20.4) %
Foreign items and rate differential 0.3  % 0.2  % (0.1) %
Redeemable non-controlling interests (1.4) % 3.0  % 0.2  %
Valuation allowance (7.6) % 0.6  % 1.5  %
Miscellaneous 1.8  % (3.6) % (1.8) %
Effective tax rate (0.9) % (10.3) % 11.4  %
 
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,
  2020   2019
Balance, beginning of year $ 400  $ 1,600 
Additions for current year tax positions 100  — 
Additions for prior year tax positions 100  — 
Reductions of prior year tax positions —  (1,200)
Balance, end of year $ 600  $ 400 
The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods was $190 as of December 31, 2020 and $80 as of December 31, 2019 (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, 2020, we estimated that there were no earnings for which repatriation tax has not been provided.
The tax years 2017 through 2020 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 operations. We increased (decreased) income tax expense for these items by $0 in 2020, $19 in 2019, and $(50) in 2018