Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

Note 4. Income Taxes

The company files a consolidated federal income tax return. The current and deferred federal and state income tax expense for the years ended December 31 is as follows (in thousands):

	2021		2020		2019
Current income tax expense	$	643,639	$	88,914	$	149,106
Deferred income tax expense		318,617		45,736		48,331
Total income tax expense	$	962,256	$	134,650	$	197,437

A reconciliation of the statutory rates to the actual effective tax rates for the years ended December 31 are as follows:

	2021			2020			2019
Statutory federal tax rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit		2.5			2.6			2.1
Release of valuation allowance		-			(2.9)			-
Federal research & development credits		(0.7)			(2.1)			(0.6)
Other permanent differences		0.1			0.5			0.1
Effective tax rate		22.9	%		19.1	%		22.6	%

Significant components of the company’s deferred tax assets and liabilities at December 31 are as follows (in thousands):

	2021		2020
Deferred tax assets
Accrued expenses and allowances	$	24,324	$	22,912
Inventories		9,088		5,670
Net operating loss carryforwards		20,333		25,089
Other		8,776		7,077
		62,521		60,748
Less: valuation allowance		(805)		(805)
Total net deferred tax assets		61,716		59,943
Deferred tax liabilities
Property, plant and equipment		(846,942)		(538,746)
Intangible assets		(62,339)		(51,835)
Other		(7,340)		(5,650)
Total deferred tax liabilities		(916,621)		(596,231)
Net deferred tax liability	$	(854,905)	$	(536,288)

Note 4. Income Taxes (Continued)

Certain wholly-owned and controlled subsidiaries of the company file separate federal and state income tax returns. One of the controlled subsidiaries has net operating loss carryforwards in the amount of $71.8 million at December 31, 2021, which expire in the years 2034 through 2039, along with state net operating loss carryforwards which expire in years 2033 through 2039. During the fourth quarter of 2020, the company evaluated the realizability of the net deferred tax assets for this controlled subsidiary. In completing this evaluation, the company considered all available positive and negative evidence in order to determine whether, based on the weight of the evidence, a valuation allowance for its deferred tax assets was necessary. Such evidence included current operating results, historical results, future reversals of existing taxable temporary differences and expectations for future taxable income (exclusive of the reversal of temporary differences and carryforwards), as well as the implementation of feasible and prudent tax planning strategies. Based on the positive evidence, the company concluded that it was more likely than not that the net deferred tax assets would be realized. As a result, $21.2 million of the valuation allowance was reversed in the year ended December 31, 2020. The company continues to maintain a valuation allowance of $805,000 as of December 31, 2021, and 2020, with respect to certain state tax credits of the controlled subsidiary.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2021		2020		2019
Balance at January 1	$	12,830	$	10,162	$	10,131
Increases related to current year tax positions		8,250		4,350		750
Increases related to prior year tax positions		2,095		-		2,198
Decreases related to prior year tax positions		(2,709)		(1,682)		(1,363)
Settlements with taxing authorities		-		-		(1,554)
Balance at December 31	$	20,466	$	12,830	$	10,162

Included in the balance of unrecognized tax benefits at December 31, 2021 and 2020, are potential benefits of $16.8 million and $9.0 million, respectively, that, if recognized, would affect the effective tax rate. The company recognizes interest and penalties related to its tax contingencies on a net-of-tax basis in income tax expense. During the years ended December 31, 2021, 2020, and 2019, the company recognized benefits from the decrease of interest expense and penalties of $205,000, $450,000, and $400,000, respectively, net of tax. In addition to the unrecognized tax benefits in the table above, the company had $561,000 and $828,000 accrued for the payment of interest and penalties at December 31, 2021 and 2020, respectively.

It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months in an amount ranging from zero to $3.3 million, as a result of the expiration of the statute of limitations and other federal and state income tax audits. The company files income tax returns in the U.S. federal jurisdiction as well as income tax returns in various state jurisdictions. The tax years 2018 through 2020 remain open to examination by the Internal Revenue Service and various state and local jurisdictions.