Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Provision for income taxes consisted of the following (in thousands):

	Years ended December 31,
	2021		2020		2019
Current
Federal	$	22,801	$	43,572	$	9,035
State	11,605		19,155		5,925
	34,406		62,727		14,960
Deferred
Federal	(3,794)		(4,963)		(3,508)
State	(2,158)		(1,657)		(3,285)
	(5,952)		(6,620)		(6,793)
Total provision for income taxes	$	28,454	$	56,107	$	8,167

The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of December 31, 2021, the Company had federal and California net operating loss carryforwards of approximately $97.9 million and $120.8 million, respectively. The federal and California net operating loss carryforwards will expire at various dates from 2027 through 2040; however, $77.7 million of the federal operating loss do not expire and can be carried forward indefinitely. Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three years’ period since the last ownership change.

Significant components of the Company’s deferred tax assets (liabilities) as of December 31, 2021 and 2020 are shown below (in thousands). A valuation allowance of $22.4 million and $15.5 million as of December 31, 2021 and 2020, respectively, has been established against the Company’s deferred tax assets related to loss entities the Company cannot consolidate under the federal consolidation rules, as realization of these assets is uncertain. Valuation allowance increased by $6.8 million in 2021.

	2021		2020
Deferred tax assets
State taxes	$	2,379	$	3,932
Stock options	—		461
Accrued expenses	1,864		3,905
Allowance for bad debts	153		351
Investment in other entities	3,289		702
Net operating loss carryforward	28,992		20,758
Lease liability	4,208		4,979
Unrealized Gain	3,007		—
Other	705		665
Deferred tax assets before valuation allowance	44,597		35,753
Valuation allowance	(22,351)		(15,517)
Net deferred tax assets	22,246		20,236
Deferred tax liabilities
Property and equipment	(777)		(661)
Acquired intangible assets	(23,763)		(24,661)
Stock options	(1,641)		—
Right-of-use assets	(4,117)		(4,888)
Debt issuance cost	(988)		—
481(a) adjustment	(87)		(985)
Deferred tax liabilities	(31,373)		(31,195)
Net deferred liabilities	$	(9,127)	$	(10,959)

The provision for income taxes differs from the amount computed by applying the federal income tax rate as follows for the years ended December 31:

	Years ended December 31,
	2021		2020		2019
Tax provision at U.S. federal statutory rates	21.0	%	21.0	%	21.0	%
State income taxes net of federal benefit	7.8		7.7		8.1
Non-deductible permanent items	3.7		0.3		3.3
Variable interest entities	(1.3)		(0.2)		(2.7)
Stock-based compensation	(1.0)		0.3		(1.5)
Change in valuation allowance	8.9		3.2		3.2
Investment basis adjustment	(2.1)		—		—
Other	—		(1.0)		0.2
Effective income tax rate	36.9	%	31.3	%	31.6	%

The Company’s effective tax rate is different from the federal statutory rate of 21% due primarily to state taxes, change in valuation allowance, and permanent adjustments. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. The CARES Act, among other things, permits net operating loss carryovers and carrybacks and modifications on the limitation of business interests. As of December 31, 2021, the Company does not expect the CARES Act to result in any material impact on the Company’s effective tax rate.

As of December 31, 2021 and 2020, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company is subject to U.S. federal income tax, as well as income tax in California. The Company and its subsidiaries’ state and federal income tax returns are open to audit under the statute of limitations for the years ended December 31, 2017 through December 31, 2020 and for the years ended December 31, 2018 through December 31, 2020, respectively. The Company does not anticipate material unrecognized tax benefits within the next 12 months.