TAXES

12 Months Ended

Dec. 31, 2021

TAXES

TAXES

NOTE 7. TAXES

Income Taxes

The Company’s income tax provision (benefit) consists of the following (in thousands):

	Years ended December 31,
	2021		2020		2019
Federal	$	10,091	$	(24,576)	$	6,080
State		265		123		336
Current tax provision (benefit)		10,356		(24,453)		6,416
Federal		4,836		15,096		1,215
State		1,691		677		129
Deferred tax provision (benefit)		6,527		15,773		1,344
Total tax provision (benefit)	$	16,883	$	(8,680)	$	7,760

In conformity with the ASC Topic 718, Compensation-Stock Compensation: Improvements to Employee Share-based Payment Accounting (ASU 2016-09), all excess tax benefits and deficiencies are recognized as income tax expense (income tax benefit) in the Company’s Consolidated Statement of Income. This may result in increased volatility in the Company’s effective tax rate.

The income tax provision differs from that computed at the federal statutory rate as follows:

	Years ended December 31,
	2021		2020		2019
Federal tax at the statutory rate	21.00	%	21.00	%	21.00	%
State tax (net of federal benefit)	1.47	%	1.11	%	1.00	%
Permanent items	0.38	%	3.52	%	0.90	%
Tax credits	(0.25)	%	(2.82)	%	(0.84)	%
Excess tax benefits on stock-based compensation	(3.14)	%	(17.89)	%	(2.49)	%
Impact of CARES Act	—	%	(65.55)	%	—	%
Change in Tax Rate and Apportionment	0.34	%	4.31	%	—	%
Other	(0.02)	%	(1.56)	%	0.04	%
	19.78	%	(57.88)	%	19.61	%

In 2021, the Company returned to a positive tax rate, recognizing income tax expense on pretax book income. The effective tax rate is below the statutory rates due primarily to excess tax benefits on stock compensation. The negative effective tax rate in 2020 is a result of the CARES Act granting the ability to carry back the net operating loss generated as a result of recognizing accelerated tax depreciation of some assets put in service in 2020 back to prior years with higher income tax rates, and the increase in excess tax benefits on stock-based compensation. In 2020, the Company completed and opened to the public a substantial part of the new hotel and casino expansion project at Monarch Black Hawk. This decrease was partially offset by the increase in nondeductible “permanent items” which consisted primarily of the $1.4 million in Colorado legislation lobbying expenses.

In 2021, 2020 and 2019, the Company recorded against the tax expense $2.7 million, $2.7 million and $1.0 million tax benefit for employee stock-based compensation, respectively.

The components of the deferred income tax assets and liabilities at December 31, 2021 and 2020, as presented in the consolidated balance sheets, are as follows (in thousands):

	2021		2020
DEFERRED TAX ASSETS
Stock-based compensation	$	3,231	$	3,011
Compensation and benefits		751		580
Accrued expenses		288		486
Right of use lease liability		3,350		3,425
Federal deduction on state taxes		155		—
Bad debt reserves		16		26
Charitable contribution carry-forwards		—		63
Other reserves		40		33
NOLs & credit carry-forwards		1,014		2,440
Deferred income tax asset	$	8,845	$	10,064
DEFERRED TAX LIABILITIES
Intangibles and amortization	$	—	$	(86)
Prepaid expenses		(1,547)		(1,234)
Fixed assets and depreciation		(23,504)		(18,136)
Right of use asset		(3,351)		(3,422)
Base stock		(60)		(249)
Federal deduction on state taxes		—		(27)
Deferred income tax liability	$	(28,462)	$	(23,154)
NET DEFERRED INCOME TAX (LIABILITY) ASSET	$	(19,617)	$	(13,090)

As of December 31, 2021, the Company has utilized all federal net operating loss (“NOL”) carryforwards. The Company has general business credit (“GBC”) carryforwards of $0.3 million and $14.7 million of state NOL carryforwards. The federal GBC carryforwards expire in 2023 through 2032. The state NOL carryforwards expire in 2030 through 2040.

The state NOL of $14.7 million and federal GBC carryforwards of $0.3 million, acquired as part of the Monarch Black Hawk acquisition, are subject to Internal Revenue Code change of ownership limitations. Accordingly, future utilization of the carryforwards is subject to an annual base limitation of $1.25 million that can be applied against future taxable income.

The Company acquired NOLs of Monarch Black Hawk generated in tax years 2000 through 2012. The statute of limitation for assessment for these NOL years is determined by reference to the year the NOL is used to reduce taxable income. Consequently, the separate returns that included Monarch Black Hawk for 2001 through 2012 remain subject to examination by taxing authorities. The Company’s income tax returns from 2018 forward are subject to examination by the taxing authorities.

Accounting standards require that tax positions be assessed for recognition using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts. The Company’s policy regarding interest and penalties associated with uncertain tax positions is to classify such amounts as income tax expense.

No uncertain tax positions were recorded as of December 31, 2021, 2020 and 2019. No change in uncertain tax positions is anticipated over the next twelve months.

No interest expense or penalties for uncertain tax positions were recorded for years ended December 31, 2021, 2020 and 2019.