Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes [Abstract]

Income Taxes

12. Income Taxes

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, provides various income and payroll tax provisions to provide economic and other relief from the COVID-19 pandemic. The CARES Act does not have a material impact on our income tax expense or effective tax rate for 2020.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The TCJA, among other things, reduced the federal corporate income tax rate from 35% to 21%, effective January 1, 2018, and eliminated several business deductions and credits, including deductions for certain executive compensation in excess of $1 million.

Our income tax expense for the years ended December 31, 2020, 2019 and 2018 comprises the following current and deferred amounts (in thousands):

	Year Ended December 31,
	2020		2019		2018
Current
Federal	$	51,741	$	9,113	$	27,815
State and local		14,203		7,354		8,415
Total current		65,944		16,467		36,230
Deferred
Federal		(1,375)		2,528		(3,182)
State and local		(486)		646		(973)
Total deferred		(1,861)		3,174		(4,155)
Income tax expense	$	64,083	$	19,641	$	32,075

Total income tax expense differed from the amounts computed by applying the federal statutory income tax rate of 21% for the years ended December 31, 2020, 2019, and 2018, to income before income taxes as a result of the following items (in thousands):

	Year Ended December 31,
	2020		2019		2018
Statutory income tax expense	$	56,730	$	27,844	$	26,991
State income tax expense, net of federal income tax expense		11,153		5,483		4,847
Executive compensation		4,566		4,123		2,760
Excess tax benefits upon vesting of share based payment awards		(108)		(252)		(1,276)
Remeasurement of deferred tax assets		-		-		1,548
Federal energy credits		(8,549)		(17,256)		(2,426)
State tax credits		(900)		-		-
Other		1,191		(301)		(369)
Income tax expense	$	64,083	$	19,641	$	32,075

Income tax expense for the year ended December 31, 2020, 2019, and 2018 is impacted by benefits of $8.5 million, $17.3 million, and $2.4 million, respectively, associated with the Energy Efficient Home Credit under IRS §45L (which we refer to as “Federal Energy Credits”). The Federal Energy Credits provide eligible contractors a federal income tax credit of $2,000 for each home delivered that meets the energy saving and certification requirements under the statute. The Federal Energy Credits had previously expired and were not available to be claimed for any home which was delivered after December 31, 2017. However, on December 20, 2019 an extension of the Federal Energy Credits was enacted into law, which extended the availability of the credit to homes delivered during the years ended December 31, 2018, 2019 and 2020. On December 27, 2020, an extension of the Federal Energy Credits was enacted into law, extending the current provisions through December 31, 2021.

Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences. Temporary differences arise when revenues and expenses for financial reporting are recognized for tax purposes in a different period. ASC 740 requires that a valuation allowance be recorded against deferred tax assets unless it is more likely than not that the deferred tax asset will be utilized. As a result of this analysis, the Company has not recorded a valuation allowance against its deferred tax assets. The Company will continue to evaluate the need to record valuation allowances against deferred tax assets and will make adjustments in accordance with the accounting standard.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2020 and 2019 (in thousands):

	As of December 31,
	2020		2019
Deferred tax assets
Warranty reserves	$	3,389	$	2,356
Amortizable intangible assets		1,464		2,183
Stock-based compensation		841		598
Accrued compensation and other		10,206		2,775
Inventories, additional costs capitalized for tax		2,028		8,206
Other		330		-
Deferred tax asset		18,258		16,118
Deferred tax liabilities
Prepaid expenses		(141)		(264)
Property and equipment		(4,658)		(5,265)
Mortgage servicing rights		(1,009)		-
Deferred tax liability		(5,808)		(5,529)
Net deferred tax asset	$	12,450	$	10,589

The uncertainty provisions of ASC 740 also require the Company to recognize the impact of a tax position in its consolidated financial statements only if the technical merits of that position indicate that the position is more likely than not of being sustained upon audit. During the year, the Company did not record a reserve for uncertain tax positions. We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are subject to U.S. federal income tax and various state income tax examinations for calendar tax years ending 2015 through 2020.