Income Taxes

12 Months Ended

Dec. 31, 2020

The provision for income taxes from operations consisted of the following:


	Years Ended December 31,
(in thousands)	2020		2019		2018
Current
Federal	$	42,337	$	28,314	$	27,410
State	12,571		7,465		9,515
Foreign	4,478		6,039		4,605
Deferred	0
Federal	2,330		3,329		3,179
State	598		805		263
Foreign	250		(1,577)		523
	$	62,564	$	44,375	$	45,495

Income and loss from operations before income taxes for the years ended December 31, 2020, 2019, and 2018, respectively, consisted of the following:


	Years Ended December 31,
(in thousands)	2020		2019		2018
Domestic	$	238,320	$	163,257	$	169,109
Foreign	11,244		15,100		3,019
	$	249,564	$	178,357	$	172,128

At December 31, 2020, the Company had $40.4 million of pre-tax loss carryforwards in various foreign taxing jurisdictions, of which $0.1 million will begin to expire between 2021 and 2022. The remaining tax losses can be carried forward indefinitely.

At December 31, 2020, and 2019, the Company had deferred tax valuation allowances of $11.3 million and $11.6 million, respectively. The valuation allowance decreased $0.3 million and $1.6 million for the years ended December 31, 2020, and December 31, 2019, respectively. The decrease in 2020 valuation allowances was primarily a result of the release of valuation allowance of foreign losses in Simpson Strong-Tie A/S, a subsidiary in Denmark. The decrease in 2019 valuation allowances was primarily a result of the releases of valuation allowance of foreign losses in Simpson Strong-Tie GmbH, a subsidiary of Germany.

The Company has not historically recorded federal income taxes on the undistributed earnings of its foreign subsidiaries because such earnings are reinvested.

As a result of the implications of the 2017 Tax Reform Act and in satisfying Management’s 2020 Plan, the Company announced one-time distributions from select foreign jurisdictions to the U.S. during 2018. The Company repatriated approximately $63.0 million between the third and fourth quarter and recorded taxes of approximately $1.0 million which is primarily comprised of withholding taxes and state income taxes.

As of December 31, 2020, the Company asserts that its accumulated undistributed earnings generated by our foreign subsidiaries are permanently reinvested and as such, has not recognized a deferred tax liability on its investment in foreign subsidiaries. The Company will continue to assess its permanent reinvestment assertion on a quarterly basis.

Reconciliations between the statutory federal income tax rates and the Company’s effective income tax rates as a percentage of income before income taxes for its operations were as follows:


	Years Ended December 31,
(in thousands)	2020		2019		2018
Federal tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	4.2	%	3.6	%	4.5	%



Change in valuation allowance	0.1	%	(0.1)	%	1.3	%
True-up of prior year tax returns to tax provision	(0.4)	%	(0.3)	%	(1.2)	%
Difference between U.S. statutory and foreign local tax rates	0.4	%	0.8	%	0.5	%
Change in uncertain tax position	—	%	0.1	%	(0.1)	%
Other	(0.2)	%	(0.2)	%	0.4	%
Effective income tax rate	25.1	%	24.9	%	26.4	%

The tax effects of the significant temporary differences that constitute the deferred tax assets and liabilities at December 31, 2020 and 2019, respectively, were as follows:


	December 31,
(in thousands)	2020		2019
Deferred asset taxes
State tax	$	1,076	$	721
Workers’ compensation	883		828
Health claims	1,207		775
Vacation liability	374		341
Allowance for doubtful accounts	384		324
Inventories	6,108		4,275
Sales incentive and advertising allowances	1,086		1,150
Lease obligations	11,631		8,812
Stock-based compensation	2,148		2,695
Unrealized foreign exchange gain or loss	344		327
Foreign tax credit carryforwards	4,744		4,945
Uncertain tax positions’ unrecognized tax benefits	77		68
Foreign tax loss carry forward	7,717		7,763
Other	—		1,026
	$	37,779	$	34,050
Less valuation allowances	(11,316)		(11,617)
Total deferred asset taxes	$	26,463	$	22,433
Deferred tax liabilities
Depreciation	$	(12,933)	$	(10,416)
Goodwill and other intangibles amortization	(15,642)		(13,737)
Tax effect on cumulative translation adjustment	(568)		(523)
Right of use assets	(11,489)		(8,764)

Other	(247)		—
Total deferred tax liabilities	(40,879)		(33,440)
Total Deferred tax asset/(liability)	$	(14,416)	$	(11,007)

A reconciliation of the beginning and ending amounts of unrecognized tax benefits in 2020, 2019 and 2018, respectively, was as follows, including foreign translation amounts:


Reconciliation of Unrecognized Tax Benefits	2020		2019		2018
Balance at January 1	$	1,706	$	1,757	$	1,895
Additions based on tax positions related to prior years	78		8		—
Reductions based on tax positions related to prior years	(7)		(30)		(171)
Additions for tax positions of the current year	48		167		100

Lapse of statute of limitations	(657)		(196)		(67)
Balance at December 31	$	1,168	$	1,706	$	1,757

Tax positions of $0.3, $0.2, and $0.1 million are included in the balance of unrecognized tax benefits at December 31, 2020, 2019, and 2018, respectively, which if recognized, would reduce the effective tax rate.

The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense in accordance with the Company’s historical accounting policy. During the year ended December 31, 2020, and 2019, accrued interest decreased by $108 thousand and $20 thousand, respectively. During the year ended December 31, 2018, accrued interest increased by $5 thousand. The Company had accrued $0.3 million for fiscal year ended 2020, and $0.4 million for each of the fiscal years ended 2019 and 2018, for the potential payment of interest, before income tax benefits. The Company does not expect any material changes in the unrecognized tax benefits within the next 12 months.

At December 31, 2020, the Company remained subject to federal income tax examinations in the U.S. for the tax years 2017 through 2020. In addition, tax years 2015 through 2020 remain open to examination in states, local and foreign jurisdictions.