Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

12. INCOME TAXES

Income tax expense for the years ended December 31, 2023, 2022, and 2021 is comprised of:

(in thousands)	2023			2022		2021
Federal, current	$	(1,132	)	$	16,123	$	9,875
Federal, deferred		16,624			12,774		6,584
State, current		2,575			5,136		2,777
State, deferred		(456	)		827		1,726
Income tax expense	$	17,611		$	34,860	$	20,962

Income tax expense for the years ended December 31, 2023, 2022, and 2021 is summarized below:

(in thousands)	2023			2022			2021
Computed "expected" income tax expense	$	15,170		$	29,986		$	16,643
State income taxes, net of federal income tax effect		1,674			4,711			3,787
Per diem allowances		862			-			-
Tax contingency accruals		(287	)		(230	)		(295	)
Valuation allowance, net		-			-			(242	)
Tax credits		(329	)		(379	)		(295	)
Excess tax benefits on share-based compensation		(1,811	)		(446	)		(259	)
Change in prior year estimates		8			(145	)		(86	)
Executive compensation disallowance		2,370			1,778			1,705
Other, net		(46	)		(415	)		4
Income tax expense	$	17,611		$	34,860		$	20,962

The amount of income tax expense (benefit) allocated to discontinued operations for TFS is $0.2 million expense for the years ended December 31, 2023 and 2022, respectively and $0.8 million benefit for the year ended December 31, 2021.

Income tax expense varies from the amount computed by applying the applicable federal corporate income tax rate of 21% for 2023, 2022, and 2021, to income before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which are the effects of the per diem pay structure for drivers, executive compensation disallowance, and excess tax benefits on share-based compensation. Drivers who meet the requirements to receive per diem receive non-taxable per diem pay in lieu of a portion of their taxable wages. This per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes. As a result, salaries, wages, and benefits are slightly lower and our effective income tax rate is higher than the statutory rate. Generally, as pre-tax income increases, the impact of the driver per diem program on effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven, the impact of the per diem program on our effective tax rate is significant. Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future periods based on fluctuations in earnings.

The temporary differences and the approximate tax effects that give rise to our net deferred tax liability at December 31, 2023 and 2022 are as follows:

(in thousands)	2023			2022
Deferred tax assets:
Insurance and claims	$	7,958		$	9,320
Net operating loss carryovers		14,550			3,583
Tax credits		347			416
Leased liability		10,796			16,292
Finance lease obligation		1,416			1,360
State bonus		6,760			2,945
Accrued bonus		3,198			-
Other		4,922			5,206
Total deferred tax assets		49,947			39,122
Deferred tax liabilities:
Property and equipment		(96,208	)		(74,481	)
Investment in partnership		(50,613	)		(42,151	)
ROU Asset- leases		(10,371	)		(14,836	)
Intangibles		(4,088	)		(1,502	)
Other		(563	)		(894	)
Prepaid expenses		(4,199	)		(3,974	)
Total deferred tax liabilities		(166,042	)		(137,838	)
Net deferred tax liability	$	(116,095	)	$	(98,716	)

The net deferred tax liability of $116.1 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially offset by net operating loss carryovers and insurance claims that have been reserved but not paid. The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense. On a periodic basis, we assess the need for adjustment of the valuation allowance. We determined that a valuation allowance was not necessary at December 31, 2023 for our deferred tax assets since it is more likely than not they will be realized from future reversals of temporary differences. If these estimates and related assumptions change in the future, we may be required to modify our valuation allowance against the carrying value of the deferred tax assets.

As of December 31, 2023, we had a $0.1 million liability recorded for unrecognized tax benefits, which includes interest and penalties of less than $0.1 million. We recognize interest and penalties accrued related to unrecognized tax benefits in tax expense. As of December 31, 2022, we had a $0.4 million liability recorded for unrecognized tax benefits, which included interest and penalties of less than $0.1 million. Interest and penalties recognized for uncertain tax positions provided for de minimus expense in 2023 and 2022.

The following tables summarize the annual activity related to our gross unrecognized tax benefits (in thousands) for the years ended December 31, 2023, 2022, and 2021:

	2023			2022			2021
Balance as of January 1,	$	392		$	596		$	887
Decreases related to lapsing of statute of limitations		(287	)		(204	)		(291	)
Balance as of December 31,	$	105		$	392		$	596

 

If recognized, approximately $0.1 million, $0.4 million, and $0.6 million of unrecognized tax benefits would impact our effective tax rate as of December 31, 2023, 2022, and 2021, respectively. Any prospective adjustments to our reserves for income taxes will be recorded as an increase or decrease to our provision for income taxes and would impact our effective tax rate.

Our 2020 through 2022 tax years remain subject to examination by the IRS for U.S. federal tax purposes, our major taxing jurisdiction. In the normal course of business, we are also subject to audits by state and local tax authorities. We do not anticipate total unrecognized tax benefits to materially change in the next twelve months.

We generated a federal net operating loss of $50.0 million in 2023 which can be carried forward indefinitely. We have $0.4 million of federal tax credits available to carry back and offset tax in 2022. Our state net operating loss carryforwards and state tax credits of $80.6 million and $0.4 million, respectively, expire beginning in 2023 and 2029 based on jurisdiction.

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the "ARPA") into law. The new law includes several provisions meant to stimulate the U.S. economy. Of relevance to the Company, ARPA extended the reach of IRC Section 162(m) to include compensation paid to the eight highest-paid individuals other than the chief executive officer and chief financial officer (rather than the three highest), however, this change is not effective until 2027. There is no material impact to the financial statements at this time.

President Biden signed the Inflation Reduction Act (the "IRA") into law on August 16, 2022. We do not anticipate the IRA will have a significant impact on income tax expense or on other taxes. One of the most impactful provisions of the IRA includes the establishment of a Corporate Alternative Minimum Tax ("CAMT"). However, this tax only applies to corporations with three-year average earnings in excess of $1.0 billion. We will continue to monitor the CAMT each year to determine if we will become an applicable corporation. Additionally, the IRA enacted an excise tax on stock buybacks, which imposes a 1% tax on stock buybacks, subject to netting provisions regarding stock awarded to employees as part of their compensation. We do not believe this will have a material impact on our active buyback program, but will continue to monitor IRS guidance and regulations on how the buyback tax will be imposed and administered.

On May 11, 2023, the Tennessee Works Act was signed into law by Governor Lee. The most impactful change for the Company was the phase-in of a single-sales factor apportionment formula for the logistics and leasing companies that file in Tennessee. The motor carriers already apply a single-sales factor. This resulted in the Company recording a $1.2 million benefit during 2023 related to revaluing our deferred tax balances for this change.