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Income Taxes
12 Months Ended
Dec. 31, 2022
Income Taxes  
Income Taxes

Note 17—Income Taxes

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

    

Year Ended December 31, 

2022

    

2021

    

2020

United States

$

133,564

$

140,307

$

140,346

Foreign

 

25,722

 

11,550

 

5,293

Total

$

159,286

$

151,857

$

145,639

The components of the provision for income taxes are as follows (in thousands):

    

Year Ended December 31, 

2022

    

2021

    

2020

Current provision

Federal

$

5,412

$

3,678

$

37,315

State

 

2,117

 

4,471

 

6,680

Foreign

 

4,041

 

2,405

 

1,741

11,570

10,554

45,736

Deferred provision (benefit)

Federal

 

12,645

 

22,607

 

(3,207)

State

 

(428)

 

2,372

 

(1,064)

Foreign

 

2,478

 

585

 

(809)

 

14,695

 

25,564

 

(5,080)

Total

$

26,265

$

36,118

$

40,656

A reconciliation of income tax expense compared to the amount of income tax expense that would result by applying the U.S. federal statutory income tax rate to pre-tax income is as follows:

    

Year Ended December 31, 

2022

    

2021

    

2020

U.S. federal statutory income tax rate

 

21.0

%

21.0

%

21.0

%

State taxes, net of federal income tax impact

 

0.8

3.9

3.1

Tax credits

 

(1.9)

(1.1)

(0.8)

Income taxed at rates greater than U.S.

 

0.6

0.2

0.2

Nondeductible meals & entertainment

 

0.5

0.2

3.3

Nondeductible compensation

0.4

0.3

0.3

Capital loss utilization - release of valuation allowance

(5.8)

0.0

0.0

Other items

 

0.9

(0.7)

0.8

Effective tax rate

 

16.5

%

23.8

%

27.9

%

The provision for income taxes has been determined based upon the tax laws and rates in the countries in which we operate. Our operations in the United States are subject to federal income tax rates of 21% and varying state income tax rates. Our principal international operations are in Canada. Our subsidiaries in Canada are subject to a corporate income tax rate of 23%. We did not have any non-taxable foreign earnings from tax holidays for taxable years 2020 through 2022.

Deferred taxes are recognized for temporary differences between the financial reporting bases and tax bases of assets and liabilities and are measured using enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based upon consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income, the length of the tax asset carryforward periods, and tax planning strategies.

The tax effect of temporary differences that give rise to deferred income taxes are as follows (in thousands):

    

December 31, 

2022

    

2021

Deferred tax assets:

Accrued compensation

$

9,685

$

4,178

Accrued workers compensation

2,949

3,252

Net operating losses

46,843

36,517

Capital loss carryforward

9,776

Lease liabilities

36,372

30,461

Insurance reserves

 

5,200

 

4,555

Loss reserves

 

1,555

 

2,163

Tax credits

 

1,069

 

1,540

Deferred payroll tax

5,404

Prepaid expenses and other

1,963

Capitalized research

5,127

Other

 

1,447

 

2,394

Total deferred tax assets

 

112,210

 

100,240

Deferred tax liabilities

Depreciation and amortization

 

(119,081)

 

(84,371)

Prepaid expenses and other

 

(285)

 

(796)

Lease assets

(36,865)

(31,069)

Total deferred tax liabilities

 

(156,231)

 

(116,236)

Valuation allowance

(13,080)

(21,207)

Net deferred tax liabilities

$

(57,101)

$

(37,203)

As of December 31, 2022, we have recorded a deferred tax asset of $46.8 million reflecting the tax benefit of approximately $450.6 million of federal and state income tax net operating loss carryforwards, some of which were acquired in the acquisitions of

PLH and other companies. Our tax credits of $1.1 million generally expire between 10 and 20 years after they are generated. Our U.S. federal net operating losses expire beginning in 2031, and our state net operating losses generally expire 20 years after the period in which the losses were incurred.

The valuation allowances for deferred income tax assets at December 31, 2022 and 2021 were $13.1 million and $21.2 million, respectively. The $8.1 million decrease in valuation allowances during 2022 was primarily due to the release of the valuation allowance on capital losses and the write-off of Australian net operating losses, partially offset by an increase in valuation allowances on state tax net operating losses acquired from PLH. These remaining valuation allowances relate to state net operating loss carryforwards and foreign tax credits. The valuation allowances were established primarily as a result of uncertainty in Primoris’ outlook as to the amount and character of future taxable income required in particular tax jurisdictions in order to utilize certain tax losses, considering also the tax regulations which limit the annual utilization of acquired losses. Primoris believes it is more likely than not that it will realize the benefit of its deferred tax assets net of existing valuation allowances.

A reconciliation of the beginning, ending and aggregate changes in the gross balances of unrecognized tax benefits is as follows (in thousands):

    

December 31, 

2022

    

2021

    

2020

Beginning balance

$

1,337

$

1,553

$

815

Increases in balances for tax positions taken during the current year

 

120

 

288

 

377

Increases in balances for tax positions taken during prior years

 

9,204

 

83

 

717

Settlements and effective settlements with tax authorities

(416)

(158)

Lapse of statute of limitations

 

(465)

 

(171)

 

(198)

Total

$

10,196

$

1,337

$

1,553

We recognize accrued interest and penalties related to uncertain tax positions in income tax expense, which were not material for the three years presented.

We believe it is reasonably possible that decreases of up to $0.2 million of unrecognized tax benefits could occur in the next twelve months due to the expiration of statutes of limitation and settlements with tax authorities.

Our federal income tax returns are generally no longer subject to examination for tax years before 2019. The statutes of limitation of state and foreign jurisdictions generally vary between 3 to 5 years. Accordingly, our state and foreign income tax returns are generally no longer subject to examination for tax years before 2017.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the US Government in response to the COVID-19 pandemic. We deferred FICA tax payments during part of 2020 as allowed under the CARES Act. This deferral was $21.7 million and $42.1 million at December 31, 2022 and 2021, respectively and is included in Accrued liabilities and Other long-term liabilities on our Consolidated Balance Sheet. Half of the tax deferral was paid to the U.S. Treasury on January 3, 2022, and the other half was paid on January 3, 2023.

ASU No. 2013-11, "Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, requires certain unrecognized tax benefits to be shown as a reduction to another asset or liability. Accordingly, this resulted in a decrease to the December 31, 2022, income tax receivable of $6.3 million.