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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income from operations before income taxes consisted of the following:
| (Dollars in thousands)
| Year Ended December 31,
| 2020 |  | 2019
United States | $ | 16,226 |  |  | $ | 5,418 |
Canada | 4,559 |  |  | 4,256 |
| $ | 20,785 |  |  | $ | 9,674 |
Provision (benefit) for income taxes from operations for the years ended December 31, consisted of the following:
| (Dollars in thousands)
| Year Ended December 31,
| 2020 |  | 2019
Current income tax expense: |  |  |
U.S. federal | $ | 3,858 |  |  | $ | — |
U.S. state | 710 |  |  | 136 |
Canada | 1,288 |  |  | 291 |
Total | $ | 5,856 |  |  | $ | 427 |
Deferred income tax expense (benefit): |  |  |
U.S. federal | $ | 236 |  |  | $ | 2,012 |
U.S. state | 52 |  |  | 303 |
Canada | (472) |  |  | (289) |
Total | $ | (184) |  |  | $ | 2,026 |
Total income tax expense (benefit): |  |  |
U.S. federal | $ | 4,094 |  |  | $ | 2,012 |
U.S. state | 762 |  |  | 439 |
Canada | 816 |  |  | 2 |
Total | $ | 5,672 |  |  | $ | 2,453 |
The reconciliation between the effective income tax rates and the statutory federal rates for operations are as follows:
| Year Ended December 31,
| 2020 |  | 2019
Statutory Federal rate | 21.0 | % |  | 21.0 | %
Increase (decrease) resulting from: |  |  |
Change in valuation allowance - current period activity | (2.2) |  |  | (4.5) |
Change in valuation allowance - reversal | — |  |  | (13.6) |
Capital loss | — |  |  | 13.6 |
Stock compensation | (2.0) |  |  | (11.5) |
Compensation deduction limitation | 1.5 |  |  | 10.1 |
State and local taxes, net | 3.8 |  |  | 4.5 |
Foreign income inclusion | — |  |  | 3.1 |
Meals & entertainment | 0.6 |  |  | 1.8 |
Change in uncertain tax positions | 4.6 |  |  | (1.0) |
Provision to return differences | (0.1) |  |  | 0.2 |
Other items, net | 0.1 |  |  | 1.7 |
Provision for income taxes | 27.3 | % |  | 25.4 | %
At December 31, 2020, the Company had $7.2 million of U.S. federal net operating loss carryforwards which are subject to expiration beginning in 2030 and $7.7 million of various state net operating loss carryforwards which expire at varying dates through 2034. Certain valuation allowances pertaining to the deferred tax assets related to our Canadian operations remain as of December 31, 2020. Lawson's Canadian operations have recently moved into a three-year cumulative income position. Based on the history of our Canadian operations and their multi-year pre-tax losses through 2018, the Company does not believe there is sufficient positive evidence at this time to consider reversing the $1.2 million valuation allowance. While forecasts may show future positive pre-tax income, future projected income is the least objective of the positive sources of evidence as the projections are inherently subjective and not yet demonstrated. The uncertainty of the continuing pandemic may further affect our Canadian business. Based on this, the Company will maintain its valuation allowances related to Canada as of December 31, 2020. The Company will continue to monitor all positive and negative evidence regarding the Canadian operations and will re-assess our position on a regular basis. As a result of acquisitions completed in recent years, the Company recorded $35.2 million of tax deductible goodwill that may result in a tax benefit in future periods. Deferred income tax assets and liabilities contain the following temporary differences:
| (Dollars in thousands)
| December 31,
| 2020 |  | 2019
Deferred tax assets: |  |  |
Net operating loss carryforward | $ | 5,431 |  |  | $ | 7,786 |
Compensation and benefits | 10,980 |  |  | 9,947 |
Inventory reserve | 1,772 |  |  | 1,589 |
Accounts receivable reserve | 167 |  |  | 152 |
Leased assets | 1,061 |  |  | 3,326 |
Other | 329 |  |  | 146 |
Total deferred tax assets | 19,740 |  |  | 22,946 |
Deferred tax liabilities: |  |  |
Intangible assets | 1,948 |  |  | 2,360 |
Lease liabilities | 1,366 |  |  | 2,850 |
Property, plant and equipment | (975) |  |  | 353 |
Other | 503 |  |  | 625 |
Total deferred liabilities | 2,842 |  |  | 6,188 |
Net deferred tax assets before valuation allowance | 16,898 |  |  | 16,758 |
Valuation allowance | (1,257) |  |  | (1,235) |
Net deferred tax assets | $ | 15,641 |  |  | $ | 15,523 |
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (Dollars in thousands)
| December 31,
| 2020 |  | 2019
Balance at beginning of year | $ | 3,242 |  |  | $ | 3,612 |
Additions for tax positions of current year | 15 |  |  | 13 |
Additions for tax positions of prior years | 1,413 |  |  | 121 |
Reductions for tax positions of prior year | — |  |  | (29) |
Lapse of statute of limitations | (984) |  |  | (475) |
Balance at end of year | $ | 3,686 |  |  | $ | 3,242 |
The recognition of the unrecognized tax benefits would have a favorable effect on the effective tax rate. Due to the uncertainty of both timing and resolution of income tax examinations, the Company is unable to determine whether any amounts included in the December 31, 2020 balance of unrecognized tax benefits represent tax positions that could significantly change during the next twelve months. The unrecognized tax benefits are recorded as a component of Other liabilities in the Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. As of December 31, 2020, the Company was subject to U.S. federal income tax examinations for the years 2017 through 2019 and income tax examinations from various other jurisdictions for the years 2013 through 2019.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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