INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2022

Components of Income Tax Expense

The components of income tax expense from our wholly owned operations and investments and our controlling interest in CIAC and joint ventures with Carrier are as follows:

Years Ended December 31,	2022			2021			2020
Current:
U.S. Federal	$	71,475		$	91,162		$	58,895
State		27,202			20,703			12,909
Foreign		13,574			10,993			4,779
		112,251			122,858			76,583
Deferred:
U.S. Federal		10,766			6,434			218
State		3,695			1,374			21
Foreign		(995	)		(1,869	)		(199	)
	13,466			5,939			40
Income tax expense	$	125,717		$	128,797		$	76,623

Reconciliation of Effective Income Tax Rate

Following is a reconciliation of the effective income tax rate:

Years Ended December 31,	2022			2021			2020
U.S. federal statutory rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit and other		4.6			3.5			3.3
Excess tax benefits from share-based compensation		(8.6	)		(1.7	)		(2.1	)
Tax effects on foreign income		0.3			0.4			0.3
FDII		(0.1	)		(0.1	)		—
Change in valuation allowance		0.4			0.8			—
Tax credits and other		(0.4	)		(0.5	)		(0.5	)
Effective income tax rate attributable to Watsco, Inc.		17.2			23.4			22.0
Taxes attributable to non-controlling interest		(2.0	)		(2.9	)		(2.8	)
Effective income tax rate		15.2	%		20.5	%		19.2	%

Significant Components of Net Deferred Tax Liabilities

The following is a summary of the significant components of our net deferred tax liabilities:

December 31,	2022			2021
Deferred tax assets:
Share-based compensation	$	27,037		$	30,854
Capitalized inventory costs and adjustments		4,366			3,449
Allowance for doubtful accounts		3,326			1,328
Self-insurance reserves		1,975			1,027
Other		8,711			6,081
Net operating loss carryforwards		3,899			3,959
	49,314			46,698
Valuation allowance		(8,171	)		(5,107	)
Total deferred tax assets		41,143			41,591
Deferred tax liabilities:
Deductible goodwill		(88,316	)		(82,704	)
Depreciation		(23,806	)		(18,744	)
Unremitted earnings of domestic affiliates		(6,618	)		(5,175	)
Other		(3,761	)		(3,619	)
Total deferred tax liabilities		(122,501	)		(110,242	)
Net deferred tax liabilities (1)	$	(81,358	)	$	(68,651	)

(1) Net deferred tax liabilities have been included in the consolidated balance sheets in deferred income taxes and other liabilities.

Changes in Gross Unrecognized Tax Benefits

The changes in gross unrecognized tax benefits were as follows:

Balance at December 31, 2019	$	5,367
Additions based on tax positions related to the current year		1,911
Reductions due to lapse of applicable statute of limitations		(773	)
Balance at December 31, 2020		6,505
Additions based on tax positions related to the current year		1,143
Reductions due to lapse of applicable statute of limitations		(921	)
Balance at December 31, 2021		6,727
Additions based on tax positions related to the current year		1,867
Reductions due to lapse of applicable statute of limitations		(842	)
Balance at December 31, 2022	$	7,752