Note I - Income Taxes

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note I - Income Taxes

The income tax provision (benefit) was

$0.6

million and tax benefit of

$11.3

 million for the

three

months ended

March 31, 2021

and

2020,

respectively.  The provision for income taxes resulted in an effective income tax rate of (

50.6

)% for

three

months ended

March 31, 2021.

The effective rate differs from the federal statutory rate of

21.0%,

primarily due to U.S. state income taxes and income earned in foreign jurisdictions. 

Coronavirus Aid, Relief and Economic Security Act

In response to the COVID-

19

pandemic, the CARES Act was signed into law in

March 2020.

The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of

2017

(

“2017

Tax Act”). Under the CARES Act, corporate taxpayers

may

carryback net operating losses (“ NOLs”) realized during

2018

through

2020

for up to

five

years, which was

not

previously allowed under the

2017

Tax Act. The CARES Act also eliminates the

80%

of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in

2018,

2019

or

2020.

Taxpayers

may

generally deduct interest up to the sum of

50%

of adjusted taxable income plus business interest income (

30%

limit under the

2017

Tax Act) for tax years beginning

January 1, 2019

and

2020.

The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in

2020

for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the

2017

Tax Act. In addition, the CARES Act raises the corporate charitable deduction limit to

25%

of taxable income and makes qualified improvement property generally eligible for

15

-year cost-recovery and

100%

bonus depreciation.  As of

March 31, 2021,

the Company has filed federal net operating loss carryback claims resulting in an income tax refund for

$6.4

 million and

$3.2

million for tax years

2019

and

2018,

respectively.  As of

March 31, 2021,

the Company has received the tax refunds for the tax years

2019

and

2018,

and expects to receive an income tax refund of

$7.5

million as a result of the carryback of the loss generated in

2020.

 

The Company determines its estimated annual effective tax rate at the end of each interim period based on estimated pre-tax income (loss) and facts known at that time. The estimated annual effective tax rate is applied to the year-to-date pre-tax income (loss) at the end of each interim period with certain adjustments. The tax effects of significant unusual or extraordinary items are reflected as discrete adjustments in the periods in which they occur. The Company's estimated annual effective tax rate can change based on the mix of jurisdictional pre-tax income (loss) and other factors. However, if the Company is unable to make a reliable estimate of its annual effective tax rate, then the actual effective tax rate for the year to date period

may

be the best estimate. The Company used a discrete effective tax rate method for the

three

months ended

March 31, 2020

as it determined that the ordinary income or loss cannot be reasonably estimated and any small changes would result in significant changes in the estimated annual effective tax rate. For the

three

months ended

March 31, 2021,

the Company determined that its annual effective tax rate approach would provide for a reliable estimate and therefore used this method to calculate its tax provision.   

Harte Hanks, or

one

of our subsidiaries, files income tax returns in the U.S. federal, U.S. state, and foreign jurisdictions. For U.S. state returns, we are

no

longer subject to tax examinations for tax years prior to

2014.

For U.S. federal and foreign returns, we are

no

longer subject to tax examinations for tax years prior to

2016.

We have elected to classify any interest expense and penalties related to income taxes within income tax expense in our Condensed Consolidated Statements of Comprehensive (Loss) Income. We did

not

have a significant amount of interest or penalties accrued at

March 31, 2021

or

December 31, 2020

.