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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2021

Components of Income Tax Expense

The components of income tax expense from our wholly owned operations and investments and our controlling interest in CIAC and joint ventures with Carrier are as follows:

Years Ended December 31,		2021				2020				2019
Current:
U.S. Federal		$	91,162			$	58,895			$	48,359
State			20,703				12,909				9,362
Foreign			10,993				4,779				8,078
			122,858				76,583				65,799
Deferred:
U.S. Federal			6,434				218				2,603
State			1,374				21				446
Foreign			(1,869	)			(199	)			(1,771	)
			5,939				40				1,278
Income tax expense		$	128,797			$	76,623			$	67,077

Reconciliation of Effective Income Tax Rate

Following is a reconciliation of the effective income tax rate:

Years Ended December 31,		2021				2020				2019
U.S. federal statutory rate			21.0	%			21.0	%			21.0	%
State income taxes, net of federal benefit and other			3.5				3.3				2.8
Excess tax benefits from share-based compensation			(1.7	)			(2.1	)			(1.8	)
Tax effects on foreign income			0.4				0.3				0.5
GILTI			—				—				(0.1	)
FDII			(0.1	)			—				—
Change in valuation allowance			0.8				—				—
Tax credits and other			(0.5	)			(0.5	)			(1.2	)
Effective income tax rate attributable to Watsco, Inc.			23.4				22.0				21.2
Taxes attributable to non-controlling interest			(2.9	)			(2.8	)			(2.7	)
Effective income tax rate			20.5	%			19.2	%			18.5	%

Significant Components of Net Deferred Tax Liabilities

The following is a summary of the significant components of our net deferred tax liabilities:

December 31,		2021				2020
Deferred tax assets:
Share-based compensation		$	30,854			$	27,223
Capitalized inventory costs and inventory adjustments			3,449				3,189
Allowance for doubtful accounts			1,328				949
Self-insurance reserves			1,027				518
Other			6,081				5,090
Net operating loss carryforwards			3,959				2,930
			46,698				39,899
Valuation allowance			(5,107	)			(668	)
Total deferred tax assets			41,591				39,231
Deferred tax liabilities:
Deductible goodwill			(82,704	)			(78,288	)
Depreciation			(18,744	)			(16,441	)
Other			(8,794	)			(7,050	)
Total deferred tax liabilities			(110,242	)			(101,779	)
Net deferred tax liabilities (1)		$	(68,651	)		$	(62,548	)

(1) Net deferred tax liabilities have been included in the consolidated balance sheets in deferred income taxes and other liabilities.

Changes in Gross Unrecognized Tax Benefits

The changes in gross unrecognized tax benefits were as follows:

Balance at December 31, 2018		$	4,902
Additions based on tax positions related to the current year			1,027
Reductions due to lapse of applicable statute of limitations			(562	)
Balance at December 31, 2019			5,367
Additions based on tax positions related to the current year			1,911
Reductions due to lapse of applicable statute of limitations			(773	)
Balance at December 31, 2020			6,505
Additions based on tax positions related to the current year			1,143
Reductions due to lapse of applicable statute of limitations			(921	)
Balance at December 31, 2021		$	6,727

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