Note 8 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(8)     INCOME TAXES

Our income tax is different than the expected amount computed using the applicable federal statutory income tax rate of 21%.  The reasons for and effects of such differences for the years ended December 31 are below (in thousands):

	2022			2021
Expected amount	$	4,171		$	(783	)
State income taxes, net of federal benefit		391			(767	)
Percentage depletion		(2,081	)		(1,725	)
Valuation allowance		(970	)		3,376
Stock-based compensation		—			380
PPP loan forgiveness		—			(2,100	)
Return to provision adjustments		153			1,610
Other		92			35
	$	1,756		$	26

The deferred tax assets and liabilities resulting from temporary differences between book and tax basis are comprised of the following at December 31 (in thousands):

	2022			2021
Deferred tax assets:
Net operating loss	$	26,570		$	32,659
Valuation allowance		(3,681	)		(4,651	)
Stock-based compensation		163			—
Other		471			—
Total deferred tax assets		23,523			28,008
Deferred tax liabilities:
Coal properties		(26,446	)		(30,368	)
Investment in partnerships		(1,480	)		(484	)
Other		(203	)		(6	)
Total deferred tax liabilities		(28,129	)		(30,858	)
Net deferred tax liability	$	(4,606	)	$	(2,850	)

Our effective tax rate ("ETR") for 2022 was 9% compared to (1%) for 2021. The tax rate for the years ended December 31, 2022 and 2021 are not predictive of future tax rates. Our ETR differs from the statutory rate due to statutory depletion in excess of tax basis, PPP loan forgiveness, return to provision adjustments, and changes in the valuation allowance.  The deduction for statutory depletion does not necessarily change proportionately to changes in income before income taxes.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Due to historical cumulative earnings over the prior 3 years as well as projected earnings  into the future, the Company believes that it is more likely than not that the benefit from certain federal and state deferred tax assets will be realized. As such, the Company has released a portion of its valuation allowance in the current year.  Due to federal NOL’s that are limited to 80% utilization to offset future federal tax liabilities reversing the Company continues to have a valuation against a portion of these NOL’s which it believes is not more likely than not to be realized.  In recognition of this, we have provided a valuation allowance of $3.7 million and $4.7 million on the deferred tax assets related to these NOL carryforwards as of December 31, 2022 and 2021, respectively.

The federal NOLs generated in pre-2018 years and remaining of $40.3 million can offset 100% of future years' taxable income.  The federal NOLs generated in post 2017 years of $60.7 million can offset 80% of future years' taxable income.  The pre-2018 federal NOLs will expire in varying amounts from 2035 to 2037 if they are not utilized. Indiana NOLs have a 20-year carryforward period and will expire in the years 2034 to 2041 if they are not utilized. 

We have analyzed our filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions, to determine whether the positions will be more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are not recorded as a tax benefit or expense in the current year. We identified our federal tax return and our Indiana state tax return as “major” tax jurisdictions. We believe that our income tax filing positions and deduction will be sustained on audit and do not anticipate any adjustments that will result in a material change to our consolidated financial position. While not material, we record any penalties and interest as general and administrative expense.   Tax returns filed with the IRS and state entities generally remain subject to examination for three years after filing.