Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 10 — Income Taxes

During the year ended December 31, 2020, and consistent with AIR’s simplified business structure and strategy, we converted one of our former taxable REIT subsidiaries into a REIT, and we elected for such entity to be taxed as a REIT under the Code commencing with its taxable year ended December 31, 2021. As a result, AIR has lower income taxes on a consolidated basis, providing more cash for distributions and other corporate uses.

As a REIT, this subsidiary will generally be allowed a deduction for dividends that it pays, and therefore, will not be subject to United States federal corporate income tax on the taxable income that is currently distributed to stockholders, however, it may be subject to federal and state tax on the net built-in gain in the converted property under the rules of Section 1374 of the Code, certain state gross income and franchise taxes, as well as taxes on any undistributed income and federal and state corporate taxes on any income earned.

The income tax effects of a REIT conversion for financial reporting purposes are reflected in the period in which all significant actions necessary to qualify as a REIT are completed and the entity has committed to becoming a REIT, including (i) obtaining approval from the appropriate parties; (ii) purging through a distribution to stockholders any accumulated earnings and profits from its operations as a C corporation; and (iii) having any remaining actions for the entity to achieve REIT status be perfunctory legal and administrative matters. All significant actions necessary to qualify as a REIT were met as of December 31, 2020, and as such its deferred tax assets and liabilities as of that date were adjusted to reflect a tax rate of zero percent, resulting in the elimination of its deferred tax assets and liabilities as of December 31, 2020.

Because the statute of limitations has not yet elapsed, our United States federal income tax returns for the year ended December 31, 2015, and subsequent years and certain of our state income tax returns for the year ended December 31, 2018, and subsequent years are currently subject to examination by the IRS or other taxing authorities.

We include any interest and penalties related to income taxes within income tax (expense) benefit in our consolidated statements of operations.

Significant components of the income tax benefit or expense are as follows and are classified within income tax (expense) benefit in our consolidated statements of operations for the years ended December 31, 2022, 2021, and 2020 (in thousands):

	2022			2021			2020
Current:
Federal	$	(756	)	$	7,409		$	(6,271	)
State		(2,807	)		(1,971	)		(8,637	)
Total current		(3,563	)		5,438			(14,908	)
Deferred:
Federal		(291	)		(153	)		7,691
State		(69	)		(39	)		2,694
Revaluation of deferred taxes due to change in tax rate		—			—			(90,914	)
Total deferred		(360	)		(192	)		(80,529	)
Total (expense) benefit	$	(3,923	)	$	5,246		$	(95,437	)

Consolidated income or loss from continuing operations subject to tax consists of pretax income or loss from the continuing operations of our TRS entities and income and gains retained by the continuing operations of the REIT. For the years ended December 31, 2022, 2021, and 2020, we had consolidated net income (loss) from continuing operations subject to tax of $7.4 million, $28.9 million, ($16.7) million, respectively.

The reconciliation of income tax attributable to continuing operations computed at the United States statutory rate to income tax benefit is shown below (dollars in thousands):

	2022						2021						2020
	Amount			Percent			Amount			Percent			Amount			Percent
Tax (expense) benefit provision at United States statutory rates on consolidated income (loss) from continuing operations subject to tax	$	(1,554	)		(21.0	%)	$	(6,064	)		(21.0	%)	$	3,516			(21.0	%)
State income tax (expense) benefit, net of federal tax (expense) benefit (1)		(2,853	)		(38.6	%)		(2,011	)		(7.0	%)		1,964			(11.7	%)
Effect of permanent differences		—			—	%		—			—	%		(434	)		2.6	%
Tax credits		191			2.6	%		3,508			12.1	%		296			(1.8	%)
Separation		—			—	%		—			—	%		(7,596	)		45.4	%
TRS REIT election (2)		—			—	%		9,656			33.4	%		(90,914	)		543.1	%
Other		293			4.0	%		157			0.5	%		(2,269	)		13.6	%
Total income tax (expense) benefit	$	(3,923	)		(53.0	%)	$	5,246			18.0	%	$	(95,437	)		570.2	%

(1)In addition to the $7.4 million of net income for the year ended December 31, 2022, which is subject to federal income tax, due to varying state income tax laws, $39.0 million of income is subject to only state income tax, resulting in $2.9 million of state income tax expense.

(2)Consistent with our simplified business structure and strategy, during the year ended December 31, 2020, we elected to treat one of our taxable subsidiaries as a REIT, resulting in the removal of deferred tax asset balances.

For income tax purposes, dividends paid to holders of Common Stock primarily consist of ordinary income, capital gains, qualified dividends, unrecaptured Section 1250 gains, and return of capital, or a combination thereof. For the years ended December 31, 2022, 2021, and 2020, dividends per share held for the entire year were estimated to have the following tax attributes:

	2022					2021					2020
(unaudited)	Amount		Percentage			Amount		Percentage			Amount		Percentage
Ordinary income	$	0.21		11.8	%	$	—		—	%	$	2.41		6.0	%
Capital gains		1.37		76.0	%		0.44		25.3	%		15.00		37.4	%
Qualified dividends		0.03		1.9	%		—		—	%		0.48		1.2	%
Unrecaptured Section 1250 gain		0.19		10.3	%		0.13		7.5	%		6.74		16.8	%
Return of capital		—		—	%		1.17		67.2	%		15.49		38.6	%
Total	$	1.80		100.0	%	$	1.74		100.0	%	$	40.12		100.0	%