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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Note 13 – Income Taxes Income from operations before income taxes consisted of the following:
| Year Ended December 31,
(in thousands) | 2023 |  | 2022
United States | $ | (24,949) |  |  | $ | 910 |
Foreign | 22,942 |  |  | 12,027 |
Total | $ | (2,007) |  |  | $ | 12,937 |
Provision (benefit) for income taxes from operations consisted of the following:
| Year Ended December 31,
(in thousands) | 2023 |  | 2022
Current income tax expense: |  |  |
U.S. federal | $ | 4,961 |  |  | $ | 4,011 |
U.S. state | 2,388 |  |  | 869 |
Foreign | 7,639 |  |  | 3,057 |
Total | $ | 14,988 |  |  | $ | 7,937 |
Deferred income tax expense (benefit): |  |  |
U.S. federal | $ | (8,101) |  |  | $ | (947) |
U.S. state | 1,232 |  |  | (73) |
Foreign | (1,159) |  |  | (1,386) |
Total | $ | (8,028) |  |  | $ | (2,406) |
Total income tax expense (benefit): |  |  |
U.S. federal | $ | (3,141) |  |  | $ | 3,063 |
U.S. state | 3,620 |  |  | 796 |
Foreign | 6,481 |  |  | 1,672 |
Total | $ | 6,960 |  |  | $ | 5,531 |
The reconciliation between the effective income tax rates and the statutory federal rates for operations are as follows:
| Year Ended December 31,
| 2023 |  | 2022
Statutory Federal rate | 21.0 | % |  | 21.0 | %
Increase (decrease) resulting from: |  |  |
Change in valuation allowance - current period activity | (380.7) |  |  | 1.3 |
Foreign rate differential | 6.2 |  |  | 4.0 |
Stock compensation | (5.0) |  |  | (0.5) |
Compensation deduction limitation | (7.0) |  |  | — |
State and local taxes, net | 67.1 |  |  | 4.5 |
Life insurance | (3.4) |  |  | — |
Meals & entertainment | (17.3) |  |  | 1.4 |
Change in uncertain tax positions | 18.1 |  |  | (2.9) |
Provision to return differences | (45.3) |  |  | — |
GILTI, Section 78, FDII, and Section 250 | — |  |  | 3.2 |
Transaction costs | — |  |  | 8.3 |
Branch income | (81.6) |  |  | — |
Earn Out Revaluation | — |  |  | 0.8 |
Change in deferred balances | 79.4 |  |  | — |
Other items, net | 1.7 |  |  | 1.7 |
Provision for income taxes | (346.8) | % |  | 42.8 | %
The effective tax rate for the year ended December 31, 2023 was (346.8)% compared to a 42.8% effective tax rate for the year ended December 31, 2022. The change in the year-over-year effective tax rate was primarily due to an increase in the partial valuation allowance against the Company's excess interest expense carryforward balance, state taxes, foreign income and a pre-tax loss in the current year. Relative to the U.S. statutory rate, the effective tax rate for the year ended December 31, 2023 was impacted by the items listed above. Deferred income tax assets and liabilities contain the following temporary differences:
| December 31,
(in thousands) | 2023 |  | 2022
Deferred tax assets: |  |  |
Federal & state NOL carryforward | $ | 10,158 |  |  | $ | 8,218 |
Inventory reserve | 8,815 |  |  | 6,990 |
Transaction costs | 673 |  |  | 1,620 |
Stock based compensation | 3,602 |  |  | 2,531 |
Accrued benefits & bonuses | 11,998 |  |  | 7,074 |
Bad debt reserve | 977 |  |  | 496 |
Section 163(j) limitation carryforward | 15,891 |  |  | 7,692 |
ROU liabilities | 18,936 |  |  | 11,947 |
Deferred state income tax | — |  |  | 745 |
Deferred revenue | 77 |  |  | 86 |
Investment in Foreign Subsidiaries | — |  |  | — |
Other | 4,005 |  |  | 2,822 |
Total deferred tax assets | 75,132 |  |  | 50,221 |
Deferred tax liabilities: |  |  |
Intangible assets and goodwill | 44,057 |  |  | 45,951 |
ROU asset | 18,264 |  |  | 11,295 |
Fixed assets | 20,977 |  |  | 15,617 |
Deferred state income tax | 17 |  |  | — |
Other | 1,591 |  |  | 188 |
Total deferred liabilities | 84,906 |  |  | 73,051 |
Net deferred tax liabilities before valuation allowance | (9,774) |  |  | (22,830) |
Valuation allowance | (8,457) |  |  | (815) |
Net deferred tax liabilities | $ | (18,231) |  |  | $ | (23,645) |
At December 31, 2023, the Company had $21.4 million of U.S. federal net operating loss carryforwards ("NOLs") which are subject to expiration beginning in 2027 and $53.5 million of various state net operating loss carryforwards which expire at varying dates between 2024 and 2035. At December 31, 2023 the Company had a total valuation allowance of $8.5 million. The change in the valuation allowance during 2023 was primarily related to a valuation allowance established against its Section 163(j) interest expense limitation deferred tax asset as the Company does not expect that its future taxable income will be sufficient to realize existing deferred tax assets. At December 31, 2022, a valuation allowance of $0.8 million was established against state NOLs. Earnings from the Company's foreign subsidiaries are considered to be indefinitely reinvested. A distribution of these non-U.S. earnings in the form of dividends or otherwise would subject the company to foreign withholding taxes and may subject the Company to U.S. federal and state taxes. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not feasible primarily due the Company's legal entity structure and the complexity of U.S. tax laws. Global Intangible Low Taxed Income (GILTI) is a deemed amount of income derived from controlled foreign corporations (CFCs) in which a U.S. person is a 10% direct or indirect shareholder. The Company owns numerous CFCs, which are subject to GILTI inclusion. However, because several of the CFCs operate in countries with a high tax rate, notably Canada, Denmark and Mexico, it was determined that a Section 954 High Tax Exception to GILTI inclusions is appropriate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| December 31,
(in thousands) | 2023 |  | 2022
Balance at beginning of year | $ | 3,027 |  |  | $ | — |
Additions for tax positions of current year | — |  |  | 191 |
Additions for tax positions of prior years | 503 |  |  | 3,741 |
Reductions for tax positions of prior year | — |  |  | (238) |
Lapse of statute of limitations | (796) |  |  | (667) |
Balance at end of year | $ | 2,734 |  |  | $ | 3,027 |
The recognition of the unrecognized tax benefits would have a favorable effect on the effective tax rate. The unrecognized tax benefits as of December 31, 2023 included $1.1 million of tax benefits that, if recognized, would impact the effective tax rate in future periods. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The unrecognized tax benefits are recorded as a component of Other Liabilities in the Consolidated Balance Sheets. The total amount accrued for interest and penalties in the liability for uncertain tax positions was $0.8 million and $0.9 million as of December 31, 2023 and December 31, 2022, respectively. It is reasonably possible that the amount of unrecognized tax benefits will change in the next twelve months; however, the Company does not expect the change to have a material impact on the Consolidated Statements of Operations and Comprehensive Income (Loss) or the Consolidated Balance Sheets. Interest and penalties are recognized over uncertain tax positions that arose from income tax matters in Canada. The Company has substantially concluded all Canadian income tax matters through the year ended December 31, 2015. Years 2016 through present are open and subject to examination. 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, 2023, the Company was subject to U.S. federal income tax examinations for the years 2020 through 2022 and income tax examinations from various other jurisdictions for the years 2016 through 2022.

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