Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

(4) Income Taxes

The provision for income taxes includes the following components (in thousands):

	Year ended December 31,
	2023		2022		2021
Current tax provision (benefit):
Federal	$	4,962	$	(7,319)	$	—
State		1,794		1,813		846
		6,756		(5,506)		846
Deferred tax provision (benefit):
Federal		(678)		21,587		32,510
State		(111)		3,549		5,344
		(789)		25,136		37,854
Provision for income taxes	$	5,967	$	19,630	$	38,700

The following is a reconciliation between a federal income tax rate of 21% and the effective tax rate which is derived by dividing the provision for income taxes by the income before the provision for income taxes (in thousands):

	Year ended December 31,
	2023		2022		2021
Computed provision (benefit) for income taxes at the statutory rate	$	8,465	$	19,442	$	31,628
Increase (decrease) in income taxes resulting from:
State income tax provision, net of federal income tax benefit		2,056		4,295		6,247
Non-deductible expenses		3,578		546		1,007
Valuation allowance changes affecting the provision for income taxes		(1,085)		1,716		—
Excess tax benefits from share-based compensation		939		534		(92)
Change in unrecognized tax benefit		(7,556)		(7,319)		—
Other, net		(430)		416		(90)
Provision for income taxes	$	5,967	$	19,630	$	38,700

For the year ended December 31, 2023, the Company released a $1.1 million valuation allowance related to certain deferred tax assets associated with state net operating losses with a limited carry forward period. For the year ended December 31, 2022, the Company recorded a $1.7 million valuation allowance against certain deferred tax assets associated with state net operating losses with a limited carry forward period. The decrease in the valuation allowance for 2023 was primarily based on changes in the Company's income tax projections by jurisdiction which increased the amount of deferred tax assets that are anticipated to be utilized prior to the deferred tax assets expiring.

The Company recorded a $0.9 million expense, $0.5 million expense and $0.1 million benefit from share-based compensation in 2023, 2022, and 2021, respectively, relating to ASU 2016-09 which requires excess tax benefits and deficiencies to be recognized in the income tax provision during the period stock options are exercised and stock awards vest.

The Company recorded a $7.6 million and $7.3 million tax benefit for the release of uncertain tax position under ASC Topic 740 for the years ended December 31, 2023 and December 31, 2022, respectively.

The significant components of the Company’s net deferred tax assets and liabilities as of December 31, 2023 and 2022, are as follows (in thousands):

	As of December 31,
	2023		2022
Deferred tax assets:
Accrued benefits	$	28,889	$	29,154
Net operating loss carryforward		130,478		186,517
Aircraft credits		93,189		77,962
Deferred revenue		91,809		35,385
Operating lease liabilities		21,207		39,209
Interest deduction limitation		11,563		26,469
Accrued reserves and other		64,971		49,972
Total deferred tax assets		442,106		444,668
Valuation allowance		(630)		(1,716)
Deferred tax liabilities:
Accelerated depreciation		(1,108,042)		(1,094,538)
Operating lease right-of-use assets		(21,034)		(35,474)
Total deferred tax liabilities		(1,129,076)		(1,130,012)
Net deferred tax liability	$	(687,600)	$	(687,060)

The Company’s deferred tax liabilities were primarily generated through accelerated depreciation, combined with shorter depreciable tax lives, allowed under the IRS tax code for purchased aircraft and support equipment compared to the Company’s depreciation policy under GAAP for such assets (see Note 1, “Nature of Operations and Summary of Significant Accounting Policies”).

At December 31, 2023 and 2022, the Company had federal net operating losses of approximately $566.3 million and $817.4 million and state net operating losses of approximately $316.2 million and $380.6 million, respectively.  The estimated effective tax rate applicable to the federal and state net operating losses at December 31, 2023, was 21.0% and 3.45%, respectively. The Company anticipates that the federal and state net operating losses will start to expire in 2035 and 2024, respectively. The Company has no ongoing federal or state examinations. Federal tax years 2020, 2021 and 2022 are open to examination.

Under ASC Topic 740, the accounting guidance related to uncertainty in tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended December 31, 2023, 2022, and 2021 is as follows (in thousands):

	Year ended December 31,
	2023		2022		2021
Unrecognized tax benefits at the beginning of year	$	8,210	$	15,529	$	14,980
Gross increases - current year tax positions		—		—		—
Gross increases - prior year tax positions		191		343		549
Gross decreases - prior year tax positions		(7,747)		(7,662)		—
Unrecognized tax benefits at end of year	$	654	$	8,210	$	15,529
Interest and penalties in year-end balance	$	—	$	607	$	976

For the years ended December 31, 2023, 2022, and 2021, the Company recorded $191,000, $343,000, and $549,000, respectively, of interest expense related to uncertain tax positions not offset by the Company's tax attributes.