Income Taxes

12 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income from continuing operations before income taxes was comprised of the following (in thousands):

	Year Ended March 31,
	2022		2021*		2020*
U.S. Federal	$	87,607	$	48,142	$	53,733
Foreign	3,858		2,726		3,655
Income before income taxes	$	91,465	$	50,868	$	57,388

*Years ended March 31, 2021 and 2020 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the Consolidated Financial Statements.

Income tax expense consists of the following (in thousands):

For the year ended:	Current		Deferred		Total
March 31, 2022
U.S. Federal	$	20,139	$	(1,578)	$	18,561
State and local	5,271		761		6,032
Foreign	638		(1,085)		(447)
Provision for income taxes	$	26,048	$	(1,902)	$	24,146
March 31, 2021*
U.S. Federal	$	6,773	$	(1,211)	$	5,562
State and local	3,561		(500)		3,061
Foreign	1,641		505		2,146
Provision for income taxes	$	11,975	$	(1,206)	$	10,769
March 31, 2020*
U.S. Federal	$	8,466	$	621	$	9,087
State and local	1,999		(100)		1,899
Foreign	1,968		(222)		1,746
Provision for income taxes	$	12,433	$	299	$	12,732

*Years ended March 31, 2021 and 2020 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the Consolidated Financial Statements.

Income tax expense differed from the amounts computed by applying the U.S. federal statutory income tax rate of 21.0% to income from continuing operations before income taxes as a result of the following (in thousands):

	Year Ended March 31,
	2022		2021*		2020*
Computed tax expense at statutory rate	$	19,206	$	10,674	$	12,044
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefits	4,765		2,419		1,943
Nondeductible executive compensation	992		248		—
Vesting of stock-based compensation	(1,916)		(741)		(542)
Amended return items (pension and foreign withholding)	—		—		975
IRS audit adjustments	—		—		502
Global intangible low-taxed income ("GILTI") inclusion and foreign-derived intangible income ("FDII") deduction	(522)		440		124
Foreign rate differential	91		85		84
Uncertain tax positions	759		(4,717)		(1,615)
Other permanent differences	(143)		1,931		(4)
Foreign tax credits	(450)		(554)		(479)
Valuation allowance	379		—		—
Repatriation tax, net of tax credit	170		822		—
Other, net	815		162		(300)
Provision for income taxes continuing operations	$	24,146	$	10,769	$	12,732

*Years ended March 31, 2021 and 2020 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the Consolidated Financial Statements.

The effective tax rates for the years ended March 31, 2022, 2021 and 2020 were 26.4%, 21.2% and 22.2%, respectively. As compared with the statutory rate for the year ended March 31, 2022, the provision for income taxes was primarily impacted by state tax expense (net of federal benefits), which increased the provision by $4.8 million and effective rate by 5.2%, executive compensation limitation, which increased the provision by $1.0 million and the effective tax rate by 1.1% and a net increase in uncertain tax positions, which increased the provision by $0.8 million and the effective rate by 0.8%. This was offset by tax benefits related to the restricted stock vesting, which decreased the provision by $1.9 million and the effective tax rate by 2.1%.

As compared with the statutory rate for the year ended March 31, 2021, the provision for income taxes was primarily impacted by the state tax expense, which increased the provision by $2.4 million and the effective rate by 4.8%, the additional non-deductible expenses, which increased the provision by $1.9 million and the effective rate by 2.1%, and the release of uncertain tax positions, which decreased the provision by $4.7 million and the effective rate by 9.3%.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2022 and 2021 are presented below (in thousands):

	March 31,
	2022		2021*
Deferred tax assets:
Operating lease liabilities	$	17,774	$	14,680
Accrued compensation	4,826		3,878
Impairment	15		386
Pension and other employee benefits	412		313
Inventory reserves	3,720		1,330
Net operating loss carryforwards	145		145
Accrued expenses	1,010		244
Foreign tax credit carry-forward	379		130
State R&D credit carry-forward	75		120
Transaction Costs	714		630
Other, net	1,477		1,455
Deferred tax assets	30,547		23,311
Valuation allowance	(524)		(145)
Deferred tax assets, net of valuation allowance	30,023		23,166
Deferred tax liabilities:
Goodwill and intangible assets	(64,903)		(65,070)
Property, plant and equipment	(8,242)		(7,816)
Operating lease - ROU assets	(16,364)		(13,631)
Repatriation reserve	(1,034)		(942)
Other, net	(1,986)		(1,425)
Deferred tax liabilities	(92,529)		(88,884)
Net deferred tax liabilities	$	(62,506)	$	(65,718)

*Year ended March 31, 2021 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the Consolidated Financial Statements.

As the assets and liabilities of our discontinued Coatings business discussed in Note 4 reside in a disregarded entity for tax purposes, the tax attributes associated with the operations of our Coatings business ultimately flow through to our corporate parent, which files a consolidated federal return. Therefore, corresponding deferred tax assets or liabilities expected to be substantially realized by our corporate parent have been reflected above as assets of our continuing operations and have not been allocated to the balances of assets or liabilities of our discontinued operations disclosed in Note 4.

As of both March 31, 2022 and 2021, we had no tax effected net operating loss carryforwards, net of valuation allowances. Net operating loss carryforwards will expire in periods beyond the next 5 years.

Certain earnings of foreign subsidiaries continue to be permanently invested outside of the United States. The earnings related to these foreign subsidiaries for which taxes are not being provided are $16.6 million. The calculation of the taxes on these undistributed earnings are impracticable because it is unknown how these earnings would be distributed.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	March 31,
	2022		2021
Balance at beginning of year	$	10,212	$	498
Increases related to prior year tax positions	—		13,895
Decreases related to prior year tax positions	(314)		(4,215)
Increases related to current year tax positions	36		34
Balance at end of year	$	9,934	$	10,212

During the year ended March 31, 2022, we released a $0.3 million reserve related to positions taken on tax returns for which the statute has expired, and accrued interest and penalties of $0.6 million and $0.5 million, respectively.

During the year ended March 31, 2021, we recorded total tax contingency reserves of $17.3 million, including unrecognized tax benefit of $13.6 million, accrued interest and penalty of $1.4 million and $2.3 million, respectively, through purchase accounting as a result of the TRUaire acquisition discussed in Note 2. During the three months ended March 31, 2021, a tax benefit of $5.3 million, including release of accrued interest ($0.6 million) and penalty ($0.6 million), was recognized through the income statement as a result of receiving the audit closing letter from Internal Revenue Service related to calendar 2017. For the year ended March 31, 2021, we recorded an additional net tax contingency reserve of $0.2 million, accrued interest of $0.1 million and accrued penalty of $0.2 million.

Our federal income tax returns for the years ended March 31, 2021, 2020 and 2019 remain subject to examination. Our income tax returns for TRUaire's pre-acquisiton periods including calendar years 2018, 2019 and 2020 remain subject to examinations. Our income tax returns in certain state income tax jurisdictions remain subject to examination for various periods for the period ended September 30, 2015 and subsequent years.