Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 8 – Income Taxes

Income before income taxes consists of the following (in thousands):

	Years Ended December 31,
	2022		2021		2020
Domestic	$	16,552	$	22,424	$	7,237
Foreign		14,172		10,767		5,696
Total	$	30,724	$	33,191	$	12,933

The components of the income tax expense are as follows (in thousands):

	Years Ended December 31,
	2022			2021			2020
Current:
Federal	$	9,349		$	4,203		$	603
State		3,819			2,272			2,054
Foreign		2,402			2,147			1,963
Total current		15,570			8,622			4,620
Deferred:
Federal		(5,513	)		334			490
State		(1,788	)		(663	)		(1,641	)
Foreign		649			54			(526	)
Total deferred		(6,652	)		(275	)		(1,677	)
Income tax expense	$	8,918		$	8,347		$	2,943

A reconciliation of the federal statutory rate to Forrester’s effective tax rate is as follows:

	Years Ended December 31,
	2022			2021			2020
Income tax provision at federal statutory rate		21.0	%		21.0	%		21.0	%
Increase (decrease) in tax resulting from:
State tax provision, net of federal benefit		5.2			3.8			2.6
Foreign tax rate differential		(0.5	)		(0.4	)		(0.2	)
Stock compensation		0.9			(0.4	)		5.7
Withholding taxes		1.7			1.3			3.3
Non-deductible expenses		1.5			—			2.2
Change in valuation allowance		1.0			—			(5.8	)
Foreign subsidiary income subject to U.S. tax		0.6			(0.5	)		(4.3	)
Change in tax legislation		(1.6	)		(0.3	)		(1.9	)
Other, net		(0.8	)		0.6			0.2
Effective tax rate		29.0	%		25.1	%		22.8	%

The increase in the effective tax rate during 2022 as compared to 2021 was primarily due to increased non-deductible stock compensation, an increase in foreign subsidiary income subject to U.S. tax in 2022, and an increase in non-deductible expenses related to meals and entertainment in 2022 that did not occur in 2021. These increases were partially offset by a benefit related to a change in tax legislation in 2022.

The components of deferred income taxes are as follows (in thousands):

	As of December 31,
	2022			2021
Non-deductible reserves and accruals	$	2,736		$	1,567
Net operating loss and other carryforwards		6,215			8,343
Stock compensation		2,051			1,256
Lease liability		17,715			20,870
Gross deferred tax asset		28,717			32,036
Less - valuation allowance		(989	)		(1,114	)
Sub-total		27,728			30,922
Other liabilities		(807	)		(741	)
Depreciation and amortization		(1,023	)		(1,962	)
Goodwill and intangible assets		(18,648	)		(22,488	)
Operating lease right-of-use assets		(13,705	)		(17,340	)
Deferred commissions		(6,913	)		(8,268	)
Net deferred tax liability	$	(13,368	)	$	(19,877	)

As of December 31, 2022 and 2021, long-term net deferred tax assets were $0.8 million and $1.5 million, respectively, and are included in other assets in the Consolidated Balance Sheets. Long-term net deferred tax liabilities were $14.1 million and $21.3 million at December 31, 2022 and 2021, respectively, and are included in non-current liabilities in the Consolidated Balance Sheets.

As of December 31, 2022, the Company has fully utilized its U.S. federal net operating loss carryforwards.

The Company has foreign net operating loss carryforwards of approximately $18.9 million, which can be carried forward indefinitely. Approximately $3.1 million of the foreign net operating loss carryforwards relate to a prior acquisition, the utilization of which is subject to limitation under the tax law of the United Kingdom.

As of December 31, 2022, the Company has no U.S. federal and state capital loss carryforwards.

The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred income tax asset. Judgment is required in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. Although realization is not assured, based upon the Company’s historical taxable income and projections of the Company’s future taxable income over the periods during which the deferred tax assets are deductible and the carryforwards expire, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances, as discussed below.

As of December 31, 2022 and 2021, the Company maintained a valuation allowance of approximately $1.0 million and $1.1 million, respectively, primarily relating to foreign net operating loss carryforwards from an acquisition, and as of December 31, 2021, also from U.S. capital losses from the Company’s investment in technology-related private equity funds.

The following table provides a summary of the changes in the deferred tax valuation allowance for the years ended December 31, 2022, 2021, and 2020 (in thousands):

	2022			2021			2020
Deferred tax valuation allowance at January 1	$	1,114		$	1,237		$	2,274
Additions		106			—			52
Deductions		(336	)		(108	)		(1,134	)
Change in tax legislation		186			—			2
Translation adjustments		(81	)		(15	)		43
Deferred tax valuation allowance at December 31	$	989		$	1,114		$	1,237

The Company will generally be free of additional U.S. federal tax consequences on additional unremitted foreign earnings that have been subject to U.S. tax primarily through GILTI or would be eligible for a dividends received deduction for earnings distributed after January 1, 2018. Notwithstanding the U.S. taxation of these amounts, the Company intends to continue to invest all of its unremitted earnings of $41.7 million, as well as the capital in these subsidiaries, indefinitely outside of the U.S. unless there are opportunities in the future to repatriate in a tax efficient manner. The Company does not expect to incur any material, additional taxes related to such amounts.

The Company utilizes a two-step process for the measurement of uncertain tax positions that have been taken or are expected to be taken on a tax return. The first step is a determination of whether the tax position should be recognized in the financial statements. The second step determines the measurement of the tax position. A reconciliation of the beginning and ending amount of unrecognized tax benefits is summarized as follows for the years ended December 31, 2022, 2021, and 2020 (in thousands):

	2022			2021			2020
Unrecognized tax benefits at January 1	$	5		$	28		$	345
Reductions for tax positions of prior years		(4	)		(24	)		(344	)
Translation adjustments		(1	)		1			27
Unrecognized tax benefits at December 31	$	—		$	5		$	28

As of December 31, 2022, the Company had no unrecognized tax benefits. The Company does not expect the liability for unrecognized tax benefits to change materially within the next 12 months.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and such amounts were not significant in the years ended December 31, 2022, 2021, and 2020. Accrued interest and penalties were insignificant at December 31, 2022, 2021, and 2020.

The Company files income tax returns in the U.S. and in foreign jurisdictions. Generally, the Company is no longer subject to U.S., state, local, and foreign income tax examinations by tax authorities in its major jurisdictions for years before 2016, except to the extent of net operating loss and tax credit carryforwards from those years. Major taxing jurisdictions include the U.S., the Netherlands, the United Kingdom, Germany, and Switzerland. As of December 31, 2022, the Company has no jurisdictions under audit.