Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 15. Income Taxes

The Company is subject to income taxes in the United States. The components of the provision for (benefit from) income taxes for the years ended December 31, 2023, 2022, and 2021 are as follows (in thousands):

	For the Years Ended
	December 31,
	2023			2022			2021
Current
Federal	$	(66	)	$	193		$	918
State		941			2,178			152
Total Current	$	875		$	2,371		$	1,070
Deferred
Federal	$	3,752		$	3,995			(6,727	)
State		5			(302	)		(1,413	)
Total Deferred	$	3,757		$	3,693		$	(8,140	)
Income tax expense/(benefit)	$	4,632		$	6,064		$	(7,070	)

The following is a reconciliation of the statutory federal income tax rate to the Company's effective tax rate for the years ended December 31, 2023, 2022, and 2021 are as follows:

	For the Years Ended
	December 31,
	2023			2022			2021
Federal statutory rate		21.0	%		21.0	%		21.0	%
Noncontrolling interest		(3.0	%)		(0.1	%)		0.0	%
State taxes, net of federal benefit		(25.1	%)		4.0	%		(20.8	%)
Nondeductible expenses 2		(134.8	%)		0.6	%		(4.6	%)
Expiration of net operating losses and tax credits		0.2	%		(7.3	%)		70.0	%
Valuation allowance increase/decrease		(1.8	%)		(0.3	%)		(247.8	%)
Uncertain tax positions		12.0	%		(0.8	%)		(9.8	%)
Return to provision adjustments and change in tax rates		(16.1	%)		(0.4	%)		0.9	%
Other		0.0	%		0.4	%		0.0	%
Effective rate 1		(147.6	%)		17.1	%		(191.1	%)

1 The overall rate impact was due to a decrease in the pre-tax income and an increase in non-deductible expenses. Due to the non-deductible characteristic of the expenses, the taxable income did not decrease at the same rate as the GAAP income, leading to this change in the tax rate.

2 The 2023 rate impact for “non-deductible expenses” was primarily driven by the increase in executive compensation due to the CEO transition, and a settlement with the Oregon DOJ.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

The components of deferred tax assets as of December 31, 2023 and December 31, 2022 are as follows:

	As of			As of
	December 31,			December 31,
	2023			2022
Deferred tax assets:
Stock compensation	$	5,760		$	2,428
Interest expense		-			5,107
Other		-			1,382
Passthrough activity—investment in partnerships		9,932			9,029
Intangibles		-			1,365
Net operating losses and credit carryforwards		34,644			34,736
Total deferred tax assets		50,336			54,047
Valuation allowance for deferred tax assets		(12,818	)		(12,763	)
Deferred tax assets, net of valuation allowance	$	37,518		$	41,284
Deferred tax liabilities:
Property and equipment		-			(9	)
Total deferred tax liabilities		-			(9	)
Deferred tax assets, net	$	37,518		$	41,275

Valuation allowances are established when necessary to reduce deferred tax assets to the amount that are more-likely-than-not expected to be realized based on the weighing of positive and negative evidence. Future realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the applicable tax law. The Company regularly reviews the deferred tax assets for recoverability based on the historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. This may change due to many factors, including future market conditions and the ability to successfully execute the business plan and/or tax planning strategies.

The Company had a valuation allowance against net deferred tax asset of $12.8 million as of December 31, 2023. In 2023, the slight increase in the valuation allowance was attributable to the Section 382 limitations on its NY and NYC NOLs, which were expected to expire unused. The components of the existing valuation allowance primarily include a valuation allowance recorded in 2020 against its net deferred tax asset of $11.4 million due to the write-off of an intercompany debt which is capital in nature. Management believes that it is not more-likely-than-not that future operations will generate sufficient taxable capital gain income to realize the deferred tax asset. This assessment remains valid for 2023, and no adjustments have been made to this valuation allowance. The remaining $1.4 million valuation allowance is against the NOLs that are expected to expire without being used. However, should there be a change in the ability to recover deferred tax assets, the income tax provision would either increase or decrease in the period when the assessment is modified.

As of December 31, 2023, the Company had federal carryforwards of approximately $160.1 million (net of uncertain tax reserve). The federal NOL carryforward may expire beginning in 2024, if not utilized. This includes $14.0 million of federal NOLs that may expire in 2024, $23.8 million that may expire in 2025, $18.4 million that may expire in 2026, and $108.2 million that may expire between 2027-2037. The Company is expected to use the federal NOLs before expiration based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. The Company had post-rate effected state NOLs (net of valuation allowance on expected expire unused) of approximately $0.6 million as of December 31, 2023. Utilization of the NOLs and tax credits may be subject to substantial annual limitation due to the “change of ownership” provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses and credit carryforwards before utilization.

The Company accounts for uncertainty in tax positions recognized in the consolidated financial statements by recognizing a tax benefit from an uncertain tax position when it is more-likely-than-not that the position will be sustained upon examination based on the technical merits. Recording an uncertain tax position is inherently uncertain and requires making judgments, assumptions, and estimates. The Company believes the judgments, assumptions and estimates made are reasonable and appropriate, no assurance can be given that the final tax outcome of these matters will not be different. To the extent that the final tax outcome of these matters is different than the amount recorded, such difference will affect the provision for income taxes and the effective tax rate in the period in which such determination is made.

The reconciliation of the Company's unrecognized tax benefits, which is included in deferred tax assets, net on the Consolidated Balance Sheets, at the beginning and end of the year is as follows:

	For the Years Ended
	December 31,
	2023			2022
Balance at January 1	$	6,742		$	7,017
Additions based on tax positions related to the current year		-			-
Additions for tax positions of prior years		-			-
Reductions for tax positions of prior years		(550	)		(275	)
Settlements		-			-
Balance at December 31	$	6,192		$	6,742

The uncertain tax position is primarily related to imputed interest, and research and development credits. The 2023 decrease of $0.5 million resulted from the release of the state exposure related to the intercompany interest expense. This release was due to the statute of the limitation expired in the states where the uncertain tax positions existed.

The Company does not anticipate any significant changes to the unrecognized tax benefits within the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023, the Company has $0.1 million of accrued interest and penalties related to uncertain tax positions.

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company is not currently under audit in any other income tax jurisdictions. We are generally subject to U.S. federal and state tax examinations for all tax years since 1999 due to our net operating loss carryforwards and the utilization of the carryforwards in years still open under statute.