Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision for income taxes consists of the following:

	Years Ended December 31,
	2022		2021		2020
	(in thousands)
Current	$	37,489	$	6,755	$	9,939
Deferred	(13,332)		3,669		13,027
Income tax provision	$	24,157	$	10,424	$	22,966

The provision for income taxes differs from the amount computed by applying the statutory Federal income tax rate before the provision for income taxes.

The reconciliation of the Federal statutory income tax rate to the effective income tax rate is as follows: 

	Years Ended December 31,
	2022		2021		2020
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of Federal benefit	4.1	%	1.8	%	5.3	%
Change in valuation allowance	—	%	1.0	%	—	%
Excess tax benefits related to share-based compensation (Note 14)	(2.4)	%	(7.8)	%	(3.2)	%
Return to provision	(0.3)	%	—	%	0.1	%
Research and development tax credits	(2.1)	%	(1.1)	%	(0.9)	%
Other	(0.9)	%	0.2	%	0.2	%
Effective tax rate	19.4	%	15.1	%	22.5	%

On May 21, 2021, the State of Oklahoma enacted House Bill 2960, effectively reducing the corporate income tax rate in Oklahoma from 6% to 4%. This resulted in a benefit of $0.8 million included in the table above under State income taxes, net of Federal benefit, for the year ending December 31, 2021.

We earn investment tax credits from the state of Oklahoma’s investment tax credit program. We use the flow-through method of accounting for the investment tax credits earned on eligible tangible asset expenditures. Under this method, the investment tax credits are recognized as a reduction to our Oklahoma income tax expense in the year they are used. As of December 31, 2022, we have credit carryforwards totaling $3.1 million that have estimated expirations starting in 2035.

We also earn research and development tax credits as defined under Section 41 of the Internal Revenue Code. To qualify for the research and development tax credits, we perform annual studies that identifies, documents, and

supports eligible expenses related to qualified research and development activities. Eligible expenses include but are not limited to supplies, material and internal wages. With the addition of BASX in December 2021 (Note 4), we identified additional eligible expenses related to qualified research and development activities.

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 amount used for income tax purposes.

The significant components of the Company’s deferred tax assets and liabilities are as follows:

 

	December 31,
	2022		2021
	(in thousands)
Deferred income tax assets (liabilities):
Allowance for credit losses and inventory reserves	$	1,337	$	625
Warranty accrual	4,184		3,675
Other accruals	4,814		1,406
Share-based compensation	7,440		7,568
Research & development expenses	11,265		—
Oklahoma investment credit carryforward	3,115		3,404
Other, net	2,339		4,112
	34,494		20,790
Valuation allowance	(3,115)		(3,404)
Net deferred income tax assets	31,379		17,386
Property & equipment	(50,040)		(49,379)
Total deferred income tax liabilities	(50,040)		(49,379)
Net deferred income tax liabilities	$	(18,661)	$	(31,993)

In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 174, research and development expenses incurred after December 31, 2021 are required to be capitalized and amortized over 5 years. The amortization requirements for tax purposes is a mid-year convention, meaning that the tax amortization is 10% in the year of acquisition, 20% in the following 4 years, and 10% in the final year. Estimated Section 174 research and developments costs for the year ended December 31, 2022 were $46.8 million. This resulted in a reduction of our deferred tax liability of approximately $11.3 million for the year ended December 31, 2022.

Realization of deferred tax assets, including the associated credit carryforwards, is dependent upon generating sufficient taxable income in the appropriate tax jurisdiction. We believe that it is more likely than not that we may not realize the benefit of our Oklahoma investment tax credit carryforward and, accordingly, have established a valuation allowance against this deferred tax asset.

The amount of income tax that we pay annually is dependent on various factors, including the timing of certain deductions. These deductions can vary from year to year and, consequently, the amount of income taxes paid in future years will vary from the amounts paid in prior years.

We file income tax returns in the U.S., state and foreign income tax jurisdictions. We are subject to U.S. income tax examinations for the tax years 2018 to present, and to non-U.S. income tax examinations for the tax years 2017 to present. In addition, we are subject to state and local income tax examinations for tax years 2017 to present. The Company continues to evaluate its need to file returns in various state jurisdictions. Any interest or penalties would be recognized as a component of income tax expense.