Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The following table sets forth components of income before income taxes: 
Year Ended December 31,
  2022 2021 2020
Domestic $ 98,004  $ 74,256  $ 52,595 
Foreign 7,715  3,888  3,833 
Income before income taxes $ 105,719  $ 78,144  $ 56,428 
The components of the provision (benefit) for income taxes were as follows: 
Year Ended December 31,
  2022 2021 2020
Current income tax provision (benefit):          
Federal $ (722) $ (779) $ (4,566)
State 733  1,779  1,522 
Foreign 1,202  844  298 
Total current 1,213  1,844  (2,746)
Deferred income tax provision (benefit):
Federal 2,528  (8,025) 3,655 
State 2,300  3,561  2,207 
Foreign 1,129  573  (3,610)
Total deferred 5,957  (3,891) 2,252 
Total income tax provision (benefit) $ 7,170  $ (2,047) $ (494)
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,
  2022 2021
Deferred income tax assets:      
Compensation accruals $ 3,306  $ 2,570 
Reserves 4,111  4,150 
Sale-leasebacks and other accruals 32,945  27,806 
Net operating losses 18,395  28,807 
Interest rate swaps —  1,928 
Energy efficiency 71,433  59,618 
Deferred revenue 2,132  2,181 
Gross deferred income tax assets 132,322  127,060 
Valuation allowance (3,621) (4,039)
Total deferred income tax assets $ 128,701  $ 123,021 
Deferred income tax liabilities:
Depreciation $ (122,762) $ (112,896)
Deferred effect of derivative liability (1,640) (1,541)
Canadian capital cost, allowance and amortization (3,098) (984)
United Kingdom goodwill amortization (952) (718)
Outside basis difference (5,038) (7,050)
Interest rate swaps (1,347) — 
Total deferred income tax liabilities (134,837) (123,189)
Deferred income tax liabilities, net $ (6,136) $ (168)
Our valuation allowance related to the following items:
December 31,
2022 2021
Interest rate swaps (1)
$ 49  $ 50 
Foreign net operating loss (2)
3,555  3,724 
State net operating loss at one of our subsidiaries (3)
17  265 
Total valuation allowance $ 3,621  $ 4,039 
(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, 2022, 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 $ 46,070  Indefinite
State net operating loss carryforwards 31,109   Various
Canadian net operating loss carryforwards 24,699  2028 through 2042
Ireland net operating loss carryforwards 754  Indefinite
Greece net operating loss carryforwards 136  2027
Spain net operating loss carryforwards 2,302  Indefinite
Total tax loss carryforwards $ 105,070 
Federal Energy Investment and Production tax credit carryforward $ 71,373 
2030 through 2042
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 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 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 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,
  2022   2021   2020
Income before provision (benefit) for income taxes $ 105,719    $ 78,144  $ 56,428 
Federal statutory tax expense $ 22,201    $ 16,410  $ 11,850 
State income taxes, net of federal benefit 3,844    2,648  2,257 
Net state impact of deferred rate change (575)   (502) (29)
Nondeductible expenses 2,198    2,572  987 
Impact of reserve for uncertain tax positions 59  286  (124)
Stock-based compensation expense 353    (4,618) (2,922)
Energy efficiency preferences (21,410)   (17,639) (8,595)
Foreign items and rate differential 37    4  160 
Redeemable non-controlling interests (411) (2,546) (767)
Valuation allowance (159) 337  (4,308)
Miscellaneous 1,033    1,001  997 
Total income tax provision (benefit) $ 7,170    $ (2,047)   $ (494)
Effective tax rate:          
Federal statutory rate expense 21.0  % 21.0  % 21.0  %
State income taxes, net of federal benefit 3.6  % 3.4  % 4.0  %
Net state impact of deferred rate change (0.5) % (0.6) % (0.1) %
Nondeductible expenses 2.1  % 3.3  % 1.7  %
Impact of reserve for uncertain tax positions 0.1  % 0.4  % (0.2) %
Stock-based compensation expense 0.3  % (5.9) % (5.2) %
Energy efficiency preferences (20.3) % (23.2) % (15.2) %
Foreign items and rate differential —  % —  % 0.3  %
Redeemable non-controlling interests (0.4) % (3.3) % (1.4) %
Valuation allowance (0.2) % 0.4  % (7.6) %
Miscellaneous 1.1  % 1.9  % 1.8  %
Effective tax rate 6.8  % (2.6) % (0.9) %
 
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,
  2022   2021
Balance, beginning of year $ 900  $ 600 
Additions for current year tax positions —  300 
Balance, end of year $ 900  $ 900 
The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods was $450 as of December 31, 2022 and $440 as of December 31, 2021 (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, 2022 and 2021, we estimated that there were no earnings for which repatriation tax has not been provided.
The tax years 2018 through 2022 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 2022, $14 in 2021, and $0 in 2020.