Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The following table sets forth components of income before income taxes: 
Year Ended December 31,
  2021 2020 2019
Domestic $ 74,256  $ 52,595  $ 34,700 
Foreign 3,888  3,833  1,853 
Income before income taxes $ 78,144  $ 56,428  $ 36,553 
The components of the (benefit) provision for income taxes were as follows: 
Year Ended December 31,
  2021 2020 2019
Current income tax provision (benefit):          
Federal $ (779) $ (4,566) $ 109 
State 1,779  1,522  474 
Foreign 844  298  (1)
Total current 1,844  (2,746) 582 
Deferred income tax (benefit) provision:
Federal (8,025) 3,655  (4,794)
State 3,561  2,207  202 
Foreign 573  (3,610) 262 
Total deferred (3,891) 2,252  (4,330)
Total income tax benefit $ (2,047) $ (494) $ (3,748)
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,
  2021 2020
Deferred income tax assets:      
Compensation accruals $ 2,570  $ 2,485 
Reserves 4,150  3,861 
Other 27,806  15,583 
Net operating losses 28,807  14,435 
Interest rate swaps 1,928  2,587 
Energy efficiency 59,618  42,084 
Deferred revenue 2,181  1,270 
Gross deferred income tax assets 127,060  82,305 
Valuation allowance (4,039) (3,877)
Total deferred income tax assets $ 123,021  $ 78,428 
Deferred income tax liabilities:
Depreciation $ (112,896) $ (66,694)
Deferred effect of derivative liability (1,541) (284)
Canadian capital cost, allowance and amortization (984) (2,195)
United Kingdom goodwill amortization (718) (732)
Outside basis difference (7,050) (10,886)
Total deferred income tax liabilities (123,189) (80,791)
Deferred income tax liabilities, net $ (168) $ (2,363)
Our valuation allowance related to the following items:
December 31,
2021 2020
Interest rate swaps (1)
$ 50  $ 106 
Foreign net operating loss (2)
3,724  3,479 
State net operating loss at one of our subsidiaries (3)
265  292 
Total valuation allowance $ 4,039  $ 3,877 
(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, 2021, 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 $ 98,490  Indefinite
State net operating loss carryforwards 40,230   Various
Canadian net operating loss carryforwards 22,603  2028 through 2041
United Kingdom net operating loss carryforwards 1,986  Indefinite
Greece net operating loss carryforwards 108  2026
Spain net operating loss carryforwards 2,447  Indefinite
Total tax loss carryforwards $ 165,864 
Federal Energy Investment and Production tax credit carryforward $ 59,618 
2030 through 2041
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 2021 were the effects of investment tax credits we are entitled from solar plants which have been placed into service during 2021, 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 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 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 Standard by which energy improvements are measured.
The following is a reconciliation of the effective tax rates:
Year Ended December 31,
  2021   2020   2019
Income before benefit for income taxes $ 78,144    $ 56,428  $ 36,553 
Federal statutory tax expense $ 16,410    $ 11,850  $ 7,676 
State income taxes, net of federal benefit 2,648    2,257  2,140 
Net state impact of deferred rate change (502)   (29) (53)
Nondeductible expenses 2,572    987  150 
Impact of reserve for uncertain tax positions 286  (124) (925)
Stock-based compensation expense (4,618)   (2,922) (169)
Energy efficiency preferences (17,639)   (8,595) (12,699)
Foreign items and rate differential 4    160  56 
Redeemable non-controlling interests (2,546) (767) 1,101 
Valuation allowance 337  (4,308) 205 
Miscellaneous 1,001    997  (1,230)
Total income tax benefit $ (2,047)   $ (494)   $ (3,748)
Effective tax rate:          
Federal statutory rate expense 21.0  % 21.0  % 21.0  %
State income taxes, net of federal benefit 3.4  % 4.0  % 5.9  %
Net state impact of deferred rate change (0.6) % (0.1) % (0.1) %
Nondeductible expenses 3.3  % 1.7  % 0.4  %
Impact of reserve for uncertain tax positions 0.4  % (0.2) % (2.5) %
Stock-based compensation expense (5.9) % (5.2) % (0.5) %
Energy efficiency preferences (23.2) % (15.2) % (34.7) %
Foreign items and rate differential —  % 0.3  % 0.2  %
Redeemable non-controlling interests (3.3) % (1.4) % 3.0  %
Valuation allowance 0.4  % (7.6) % 0.6  %
Miscellaneous 1.9  % 1.8  % (3.6) %
Effective tax rate (2.6) % (0.9) % (10.3) %
 
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,
  2021   2020
Balance, beginning of year $ 600  $ 400 
Additions for current year tax positions 300  100 
Additions for prior year tax positions —  100 
Balance, end of year $ 900  $ 600 
The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods was $440 as of December 31, 2021 and $190 as of December 31, 2020 (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, 2021 and 2020, we estimated that there were no earnings for which repatriation tax has not been provided.
The tax years 2018 through 2021 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 $14 in 2021, $0 in 2020, and $19 in 2019