Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense (benefit) was as follows:

(in thousands)	For the Year Ended December 31,
	2022		2021
Current tax expense (benefit)
Federal	$	204	$	(418)
State	(89)		(17)
Total current tax expense (benefit)	$	115	$	(435)
Deferred tax expense
Federal	$	(71)	$	(106)
State	260		135
Total deferred tax expense	189		29
Total tax expense (benefit)	$	304	$	(406)

The Company received net cash refunds for income taxes of $3.0 million in 2022 and $0.1 million in 2021.

A reconciliation between the Company’s effective tax rate on income (loss) before income taxes and the statutory tax rate is as follows: 

(in thousands)	For the Year Ended December 31,
	2022				2021
	Amount		Percent		Amount		Percent
Income tax expense (benefit) at federal statutory rate	$	2,430	21.0	%	$	(10,264)	21.0	%
State income tax, net of federal benefit	140		1.2	%	(2,185)		4.5	%
Other permanent differences	1		—	%	1		—	%
Research and development tax credits	(393)		(3.4)	%	(551)		1.1	%
Other tax credits	(612)		(5.3)	%	291		(0.6)	%
Tax reserve reassessment	79		0.7	%	157		(0.3)	%
Change in valuation allowance	(497)		(4.3)	%	12,361		(25.3)	%
Return adjustment	(1,147)		(9.9)	%	(278)		0.6	%
Stock-based compensation	87		0.7	%	74		(0.2)	%
Other, net	216		1.9	%	(12)		—	%
Income tax expense (benefit)	$	304	2.6	%	$	(406)	0.8	%

For the year ended December 31, 2022, the Company recognized pretax income of $11.6 million. For the year ended December 31, 2021, the Company recognized a pretax loss of $48.9 million.

The Company generates R&D tax credits as a result of its R&D activities, which reduce the Company’s effective income tax rate. In general, these credits are general business credits and may be carried forward up to 20 years to be offset against future taxable income. The income tax expense for 2022 is primarily related to the R&D, state credit and valuation allowance against the deferred tax assets.

Significant components of deferred income tax assets and liabilities consisted of the following:

(in thousands)	As of December 31,
	2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	25,541	$	30,967
Capital loss carryforwards	194		—
Research and development credits	5,565		5,168
Other state credits	3,671		3,090
Inventory	2,407		2,511
Allowances and bad debts	1,195		1,146
Accrued warranty	6,048		9,492
Accrued wages and benefits	1,294		107
Other accrued expenses	5,749		4,533
Stock-based compensation	188		182
Capitalized research and development costs	4,658		160
163(j) disallowed interest	1,343		1,634
Intangible amortization	—		668
Contract liabilities	1,057		1,005
Operating lease liability	2,820		3,862
Other	1,685		752
Total deferred tax assets	63,415		65,277
Valuation allowance	(59,680)		(60,177)
Total deferred tax assets, net of valuation allowance	$	3,735	$	5,100
Deferred tax liabilities:
ROU operating lease asset	$	(2,612)	$	(3,537)
Intangible amortization	(110)		—
Tax depreciation in excess of book depreciation on property, plant and equipment	(2,291)		(2,579)
Total deferred tax liabilities	$	(5,013)	$	(6,116)
Net deferred tax liability	$	(1,278)	$	(1,016)

The Company’s net deferred tax liability is presented as a separate line item in the Consolidated Balance Sheets.

A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The guidance on accounting for income taxes provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset.

The Company evaluated the need to maintain a valuation allowance for deferred tax assets based on an assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. As a result of this evaluation, the Company concluded that the negative evidence outweighed the positive evidence and that a full valuation allowance should be maintained against its net deferred tax assets as of December 31, 2022 and 2021. The Company’s net deferred tax liability of $1.3 million and $1.0 million as of December 31, 2022 and 2021, respectively, represents the deferred tax liability related to indefinite-lived assets which cannot serve as a source of income for the realization of deferred tax assets that are not indefinite-lived.

As of December 31, 2022, the Company has, on a tax-effected basis, $9.2 million in R&D and state tax credit carryforwards which begin to expire in 2023. The Company has $17.5 million and $8.1 million of federal and state (tax effected, net of federal tax benefit) net operating loss carryforwards that are available to offset taxable income in the future. The federal and state net operating loss carryforwards begin to expire in 2037 and 2026, respectively.

The change in unrecognized tax benefits excluding interest and penalties were as follows:

(in thousands)	For the Year Ended December 31,
	2022		2021
Balance at beginning of year	$	1,588	$	1,431
Additions based on tax positions related to the current year	74		102
Additions for tax positions of prior years	5		56
Reduction for tax positions of prior years	(7)		$	(1)
Balance at end of year	$	1,660	$	1,588

The Company recognizes interest and penalties related to unrecognized tax benefits in Income tax expense. As of December 31, 2022 and 2021, the amount accrued for interest and penalties was not material. The Company reflects the liability for unrecognized tax benefits as Other noncurrent liabilities in its Consolidated Balance Sheets. The amounts included in “reductions for tax positions of prior years” represent decreases in the unrecognized tax benefits relating to expiration of the statutes during each year shown.

As of December 31, 2022, the Company believes the liability for unrecognized tax benefits, excluding interest and penalties, could decrease by an immaterial amount in 2023 due to lapses in the statute of limitations. Due to the various jurisdictions in which the Company files tax returns, it is possible that there could be other changes in the amount of unrecognized tax benefits in 2023, but the amount cannot be estimated. Unrecognized tax benefits that, if recognized, would affect the effective tax rate are not expected to be material.

With few exceptions, the major jurisdictions subject to examination by the relevant tax authorities and open tax years, stated as the Company’s fiscal years, are as follows:

Jurisdiction	Open Tax Years
U.S. Federal	2014	to	2022
U.S. States	2013	to	2022
Canada	2019	to	2020

The Company is currently under federal income tax audit for tax years 2014, 2015 and 2016. The Company is currently under Illinois income tax audit for tax years 2013, 2014, 2015 and 2016.

Inflation Reduction Act

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA contains several revisions to the Internal Revenue Code, including a 15% corporate minimum income tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. While these tax law changes have no immediate effect and are not expected to have a material adverse effect on our results of operations going forward, the Company will continue to evaluate its impact as further information becomes available.