Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

14. Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse. Additionally, the impact on deferred tax assets and liabilities of changes in tax rates is reflected in the financial statements in the period that includes the date of enactment.

Income Tax Benefit

For the years ended December 31, 2021, 2020, and 2019, the Company recorded income tax benefit from continuing operations as shown below. The tax provision in future periods will vary based on current and future temporary differences, as well as future operating results.

	Year ended December 31,
	2021		2020		2019
	(in millions)
Current tax (expense) benefit
Federal	$	—	$	—	$	—
State		(1.6)		(1.9)		3.1
Total current tax		(1.6)		(1.9)		3.1
Deferred tax (expense) benefit
Federal		22.2		34.2		25.5
State		(6.8)		(1.7)		5.3
Total deferred tax		15.4		32.5		30.8
Income tax benefit	$	13.8	$	30.6	$	33.9

The Company reported total income tax expense of $292.9 million, $7.8 million and $1.5 million during the years ended December 31, 2021, 2020 and 2019, respectively.

As a result of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act enacted on March 27, 2020, companies were able to request refunds of the remaining amount of refundable Alternate Minimum Tax carryforwards. Previously, the remaining amount would have been refunded between 2020 and 2021. The Company received a full refund of approximately $4.4 million during the second quarter of 2020. The CARES Act contains many other tax provisions, all of which have no material impact to the financial statements.

The provision for income taxes incurred is different from the amount calculated by applying the applicable federal income tax rate to the income from continuing operations before income tax benefit. The significant items causing these differences are as follows:

	Year ended December 31,
	2021		2020		2019
	(in millions)
Statutory federal income taxes	$	17.3	$	29.2	$	24.5
State income taxes		0.6		4.8		0.8
Tax status & tax rate change		0.1		0.8		0.9
Other true-ups		0.3		(2.5)		0.8
Equity compensation		3.8		(1.0)		(0.3)
Other permanent differences		(2.4)		(0.4)		(0.4)
Goodwill impairment		—		—		—
Research and development tax credits		2.5		2.2		—
Uncertain tax positions		(0.1)		(0.2)		3.7
Change in valuation allowance		(8.3)		(2.3)		3.9
Income tax (expense) benefit, net	$	13.8	$	30.6	$	33.9

The $8.3 million change in valuation allowance as of December 31, 2021, is the result of changes in state deferred tax assets related to net operating loss carryforwards and state bonus depreciation modification. The $2.3 million change in valuation allowance as of December 31, 2020 is similarly related to the increases in state net operating loss carryforwards and state bonus modification deferred tax assets that are not more likely than not to be realized.  

Deferred Income Taxes, Net

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020 are as follows:

	December 31,
	2021		2020
	(in millions)
Deferred tax assets
Allowances and other reserves	$	2.2	$	6.3
Net operating loss carryforwards		82.1		223.1
Research and development tax credits		—		4.1
Interest hedging		—		2.0
Other		1.0		1.4
Total deferred tax assets		85.3		236.9
Less: valuation allowance		(35.5)		(30.8)
Deferred tax asset	$	49.8	$	206.1
Deferred tax liabilities
Depreciation and amortization	$	(145.8)	$	(206.3)
Franchise operating rights		(161.5)		(198.6)
Debt issuance costs		—		(1.8)
Total deferred tax liabilities		(307.3)		(406.7)
Net deferred tax liabilities	$	(257.5)	$	(200.6)

Valuation Allowance

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. In evaluating the need for a valuation allowance, management takes into account various factors, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. On the basis of this evaluation, a valuation allowance of $35.5 million and $30.8 million, as of December 31, 2021 and 2020, respectively, has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

Net Operating Loss and Credit Carryforwards

As of December 31, 2021, the Company had approximately $197.7 million of federal tax net operating loss carryforwards, which expire between the years 2026 through 2037. In addition, as of December 31, 2021, the Company had state tax net operating loss carryforwards of $897.3 million, of which $237.2 million are indefinite lived and $660.1 million expire between 2022 and 2039.

As a result of the IPO (effective May 25, 2017), the Company experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code resulting in limitations on the Company’s use of its existing federal and state net operating losses and capital losses. After December 31, 2021, $197.7 million of the Company’s federal tax loss carryforwards are subject to Section 382 and other restrictions.

As of December 31, 2021, the Company had utilized the federal research and development carryforwards.

Uncertain Tax Positions

These uncertain tax positions, if ever recognized in the financial statements, would be recorded in the consolidated statements of operations as part of the income tax provision. A reconciliation of the beginning and ending amount of unrecognized tax benefits, exclusive of interest and penalties, included in other non-current liabilities on the accompanying consolidated balance sheets of the Company is as follows:

	Year ended December 31,
	2021		2020		2019
	(in millions)
Unrecognized tax benefits—January 1st	$	13.7	$	11.4	$	28.0
Gross increases—tax positions in prior period		—		0.7		—
Gross decreases—tax positions in prior period		(0.7)		—		(12.8)
Gross increases—tax positions in current period		1.2		1.6		—
Settlements		—		—		(3.8)
Unrecognized tax benefits—December 31st	$	14.2	$	13.7	$	11.4

As of December 31, 2021, the Company recorded gross unrecognized tax benefits of $14.2 million, all of which, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties accrued on uncertain income tax positions as part of the income tax provision. Interest and penalties included in other long-term liabilities on the accompanying consolidated balance sheets of the Company were $1.4 million, $1.2 million, and $1.0 million for years ended December 31, 2021, 2020 and 2019, respectively. The Company expects $2.7 million of unrecognized tax benefits and $1.4 million of interest could reverse in the next 12 months.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. No tax years for the Company are currently under examination by the IRS or state and local tax authorities for income tax purposes. Generally, the Company’s 2018 through 2021 tax years remain open for examination and assessment. Years prior to 2018 remain open solely for purposes of examination of the Company’s loss and credit carryforwards. The Company is not currently under examination, but does have open tax controversy matters with state taxing authorities.  Activity related to state and local controversy matters did not have a material impact on our consolidated financial position or results of operations during the year ended December 31, 2021, nor do we anticipate a material impact in the future.