Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

Note 15.  Income Taxes

The provision (benefit) for income tax expense consisted of the following:

	Year Ended December 31,
(In thousands)	2020		2019		2018
Current income taxes, Federal	$	(653)	$	205	$	2,416
Current income taxes, State		294		100		778
		(359)		305		3,194
Deferred income taxes, Federal		(833)		(303)		(4,804)
Deferred income taxes, State		(395)		153		(1,537)
		(1,228)		(150)		(6,341)
Unrecognized tax benefit, Federal		—		—		—
Unrecognized tax benefit, State		(54)		3		—
		(54)		3		—
Total (benefit) provision for income taxes	$	(1,641)	$	158	$	(3,147)

The components of our deferred tax assets and liabilities were as follows:

	At December 31,
(In thousands)	2020		2019
Deferred tax assets:
Operating lease liability	$	5,329	$	4,137
Net operating loss carryforwards		312		3,179
Accounts receivable and inventory reserves		3,887		2,589
Stock-based compensation		3,558		2,393
Accrued liabilities		1,489		1,239
Warranty reserves		1,206		936
Intangible assets		612		—
Valuation allowance		—		(185)
Other		107		108
Total deferred tax assets	$	16,500	$	14,396
Deferred tax liabilities:
Right of use asset		(5,016)		(3,962)
Fixed assets		(1,286)		(1,292)
Intangible assets		—		(172)
Total deferred tax liabilities	$	(6,302)	$	(5,426)
Net deferred tax assets	$	10,198	$	8,970

A reconciliation of income tax (benefit) expense to the statutory federal tax rate is as follows:

	Year Ended December 31,
	2020		2019		2018
Tax expense at statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	(7.9)		7.3		11.9
Executive compensation	(5.5)		9.1		11.8
Meals and entertainment	(10.6)		2.6		7.6
Incentive stock options	(0.4)		0.2		1.9
Employee Stock Purchase Plan	(8.6)		1.7		4.5
Valuation allowance	8.0		1.7		—
Return to provision	3.6		(0.4)		3.6
IRS Exam	2.5		—		23.3
Deferred reprice - state	—		(0.1)		(0.3)
Federal carryback claim deferred rate differential	38.5		—		—
Unrecognized tax benefits	2.3		—		(4.6)
Excess benefit on non-qualified stock options and RSUs	28.0		(41.5)		(177.6)
Interest and penalties	1.9		(0.2)		6.3
Other	(0.2)		—		0.1
Net effective rate	72.6	%	1.4	%	(90.5)	%

A reconciliation of unrecognized tax benefits (“UTB”) is as follows:

	December 31,
(In thousands)	2020		2019		2018
Balance beginning of the year	$	54	$	51	$	212
Gross change — tax positions in prior year		(54)		3		3,477
Settlement		—		—		(3,638)
Balance end of the year	$	—	$	54	$	51

As of December 31, 2020, we had approximately $0.8 million of state net operating loss (“NOL”) carry-forwards. The state NOL carry-forward amounts expire beginning in tax years 2026 if not utilized.

We are subject to income tax examinations in the U.S. federal jurisdiction as well as in various state jurisdictions. U.S. federal and state tax years prior to 2017 are closed to examination as of December 31, 2020. We are not currently under examination by any taxing authority. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense on our statement of operations.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in our consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act establishes new tax laws effective for tax years beginning after December 31, 2017, including, but not limited to, the reduction of the U.S. federal corporate income tax rate to 21%.

Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes. These differences relate primarily to different methods used for income tax purposes including depreciation and amortization, warranty and vacation accruals, and deductions related to allowances for doubtful accounts receivable and inventory reserves.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, all deferred tax assets are expected to be realizable. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.