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INCOME TAXES (Tables)
 12 Months Ended
Dec. 31, 2023
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,
   
2023
     
2022
     
2021
  
Current:
         
U.S. Federal
   
$
119,133
 
    $ 71,475      $ 91,162  
State
   
 
29,749
 
      27,202        20,703  
Foreign
   
 
14,048
 
      13,574        10,993  
  
 
 
     
 
 
     
 
 
  
  
 
162,930
 
      112,251        122,858  
  
 
 
     
 
 
     
 
 
  
Deferred:
         
U.S. Federal
   
 
(5,581
) 
      10,766        6,434  
State
   
 
(1,301
) 
      3,695        1,374  
Foreign
   
 
(297
) 
      (995 )       (1,869 ) 
  
 
 
     
 
 
     
 
 
  
  
 
(7,179
) 
      13,466        5,939  
  
 
 
     
 
 
     
 
 
  
Income tax expense
   
$
155,751
 
    $ 125,717      $ 128,797  
  
 
 
     
 
 
     
 
 
  
Reconciliation of Effective Income Tax Rate
Following is a reconciliation of the effective income tax rate:
 
Years Ended December 31,
   
2023
    
2022
    
2021
  
U.S. federal statutory rate
   
 
21.0
% 
     21.0 %      21.0 % 
State income taxes, net of federal benefit and other
   
 
3.5
 
     4.6       3.5  
Excess tax benefits from share-based compensation
   
 
(1.8
) 
     (8.6 )      (1.7 ) 
Tax effects on foreign income
   
 
0.2
 
     0.3       0.4  
FDII
   
 
(0.1
) 
     (0.1 )      (0.1 ) 
Change in valuation allowance
   
 
0.3
 
     0.4       0.8  
Tax credits and other
   
 
(0.8
) 
     (0.4 )      (0.5 ) 
  
 
 
    
 
 
    
 
 
  
Effective income tax rate attributable to Watsco, Inc.
   
 
22.3
 
     17.2       23.4  
Taxes attributable to
non-controlling
interest
   
 
(2.6
) 
     (2.0 )      (2.9 ) 
  
 
 
    
 
 
    
 
 
  
Effective income tax rate
   
 
19.7
% 
     15.2 %      20.5 % 
  
 
 
    
 
 
    
 
 
  
Significant Components of Net Deferred Tax Liabilities
The following is a summary of the significant components of our net deferred tax liabilities:
 
December 31,
   
2023
     
2022
  
Deferred tax assets:
      
Share-based compensation
   
$
30,847
 
    $ 27,037  
Capitalized inventory costs and adjustments
   
 
5,387
 
      4,366  
Allowance for doubtful accounts
   
 
4,096
 
      3,326  
Self-insurance reserves
   
 
1,701
 
      1,975  
Capitalized research and development costs
   
 
6,712
 
      —   
Other
   
 
7,678
 
      8,711  
Net operating loss carryforwards
   
 
4,584
 
      3,899  
  
 
 
     
 
 
  
  
 
61,005
 
      49,314  
Valuation allowance
   
 
(10,468
) 
      (8,171 ) 
  
 
 
     
 
 
  
Total deferred tax assets
   
 
50,537
 
      41,143  
  
 
 
     
 
 
  
Deferred tax liabilities:
      
Deductible goodwill
   
 
(104,026
) 
      (88,316 ) 
Depreciation
   
 
(24,973
) 
      (23,806 ) 
Unremitted earnings of domestic affiliates
   
 
(5,008
) 
      (6,618 ) 
Other
   
 
(4,390
) 
      (3,761 ) 
  
 
 
     
 
 
  
Total deferred tax liabilities
   
 
(138,397
) 
      (122,501 ) 
  
 
 
     
 
 
  
Net deferred tax liabilities (1)
   
$
(87,860
) 
    $ (81,358 ) 
  
 
 
     
 
 
  
 
(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, 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
 
Additions based on tax positions related to the current year
      1,867  
Reductions due to lapse of applicable statute of limitations
      (842 ) 
  
 
 
  
Balance at December 31, 2022
      7,752  
Additions based on tax positions related to the current year
      1,215  
Reductions due to lapse of applicable statute of limitations
      (1,093 ) 
  
 
 
  
Balance at December 31, 2023
   
$
7,874