XML 25 R15.htm IDEA: XBRL DOCUMENT v3.23.3
INCOME TAXES
 9 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company determines the tax provision for interim periods using an estimate of our annual effective tax rate ("ETR"), adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual ETR, and if our estimated tax rate changes, we make a cumulative adjustment. If a reliable estimate of the annual ETR cannot be made, the actual ETR for the year to date may be the best estimate of the annual ETR.

Our effective tax rate for the three months ended September 30, 2023 increased to 55.8% from 26.4% for the three months ended September 30, 2022, with the largest contributing factor being the impact of the research and development ("R&D") tax credit. This credit, which is not correlated with taxable income, resulted in an incremental benefit of 24.2% over the corresponding benefit during the third quarter of 2022. In periods with taxable income, the benefit from the R&D tax credit serves to reduce income tax expense, thereby lowering the effective tax rate. However, in periods with taxable loss, the benefit from the R&D tax credit serves to increase the income tax benefit, thereby increasing the effective tax rate.
Similarly, our effective tax rate for the nine months ended September 30, 2023 increased to 61.7% from 17.9% for the nine months ended September 30, 2022, as the R&D tax credit resulted in an incremental benefit of 26.5% over the corresponding benefit during the first nine months of 2022. Additionally, our effective state income tax rate increased to 12.3% during the first nine months of 2023 from 1.7% during the first nine months of 2022, as the allocation of net income (loss) to individual subsidiaries and those subsidiaries' relative state income tax exposure caused the related effective tax rate to deviate significantly from historical norms. Lastly, the impact of provision-to-return adjustments on our effective tax rate increased to 11.3% during the first nine months of 2023 compared to only 1.3% during the first nine months of 2022 due to a change in method for calculating the 2022 tax benefit related to the R&D tax credit, which was previously estimated assuming we would continue to apply the ASC 730 Safe Harbor Directive in determining credit amounts. The results of our 2022 R&D tax credit study, completed during the third quarter of 2023, indicated a more beneficial R&D tax credit utilizing the standard, pre-Safe Harbor method for determining qualified research expenditures. As such, we have elected to forego applying the ASC 730 Safe Harbor Directive for tax year 2022.