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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company elected to be taxed as a REIT and operate in a manner that allows us to qualify as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2017. The Company's taxable REIT subsidiary ("TRS") filed separately as a C corporation. The Company also files separate income tax returns in various states.
As a REIT, the Company will generally be allowed a deduction for dividends that it pays, and therefore, will not be subject to United States federal corporate income tax on its taxable income that is currently distributed to shareholders. The Company may be subject to certain state gross income and franchise taxes, as well as taxes on any undistributed income and federal and state corporate taxes on any income earned by its TRS.
Distributions with respect to the Company’s common stock can be characterized for federal income tax purposes as ordinary income, capital gains, unrecaptured section 1250 gains, return of capital, or a combination thereof. Taxable distributions paid for the years ended December 31, 2023, 2022, and 2021, were classified as ordinary income.
The income tax expense (benefit) on income (loss) from continuing operations for the years ended December 31, 2023, 2022, and 2021, consisted of the following (in millions):
202320222021
Current:
Federal$— $(18.0)$0.1 
State— (0.3)(0.1)
Total Current$— $(18.3)$— 
Deferred:
Federal$— $— $— 
State— — — 
Total Deferred$— $— $— 
Income tax expense (benefit)$— $(18.3)$— 
Income tax expense (benefit) for the years ended December 31, 2023, 2022, and 2021, differs from amounts computed by applying the statutory federal rate to income from continuing operations before income taxes for the following reasons (in millions):
202320222021
Computed federal income tax expense (benefit)$8.6 $3.9 $15.8 
State income taxes— (1.5)1.4 
Changes in valuation allowances1.0 5.3 (8.0)
REIT rate differential(9.3)(7.8)(9.0)
Nontaxable or nondeductible items(0.1)— — 
Share-based compensation(0.2)(0.1)0.1 
Effective rate differences between current and deferred taxes— 0.4 (0.5)
Pension termination— (18.3)— 
Other, net— (0.2)0.2 
Income tax expense (benefit)$— $(18.3)$— 
The change in the Company's effective tax rate for the year ended December 31, 2023, as compared to the year ended December 31, 2022, is primarily due to the termination of the Company's Defined Benefit Plans in 2022, impairments incurred in 2022 and 2023, and changes in the valuation allowance on deferred tax assets during the year due to the sale of the Grace Disposal Group.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2023 and 2022, were as follows (in millions):
20232022
Deferred tax assets:
Employee benefits$4.4 $6.3 
Capitalized costs1.3 1.5 
Joint ventures and other investments6.0 6.0 
Impairment and amortization0.7 24.8 
Solar investment benefits15.2 14.9 
Insurance and other reserves6.0 7.2 
Disallowed interest expense10.5 8.9 
Net operating losses61.0 44.1 
Operating lease liability— 6.6 
Other3.9 1.0 
Total deferred tax assets$109.0 $121.3 
Valuation allowance(109.0)(109.8)
Total net deferred tax assets$— $11.5 
Deferred tax liabilities:
Property (including tax-deferred gains on real estate transactions)$— $5.0 
Operating lease asset— 6.5 
Total deferred tax liabilities$— $11.5 
Net deferred tax assets (liabilities)$— $— 
Federal tax credit carryforwards at December 31, 2023, totaled $8.3 million, of which $8.1 million will expire in 2036 and $0.2 million will expire in 2039. State tax credit carryforwards at December 31, 2023, totaled $6.9 million and may be carried forward indefinitely under state law. As of December 31, 2023, the Company had gross federal net operating loss carryforwards of $224.2 million ($47.0 million tax-effected) that can be carried forward indefinitely under federal law. As of December 31, 2023, the Company had state net operating loss carryforwards of $276.0 million ($14.0 million tax-effected) that can be carried forward indefinitely.
A valuation allowance must be provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized, based upon consideration of all positive and negative evidence. Sources of evidence include, among other things, a history of pretax earnings or losses, expectations of future results, tax planning opportunities and appropriate tax law.
Due to the recent losses the Company has generated in its TRS, the Company believes that it is more likely than not that its U.S. and state deferred tax assets will not be realized as of December 31, 2023. The Company recorded a decrease in the valuation allowance of $0.8 million on its net U.S. and state deferred tax assets for the current period. Should the Company determine that it would be able to realize its deferred tax assets in the foreseeable future, an adjustment to the deferred tax assets may cause a material increase to income in the period such determination is made. Significant management judgment is required in determining the period in which reversal of a valuation allowance should occur. The net change to the valuation allowance recorded during each of the years ended December 31, 2023, 2022, and 2021, was as follows (in millions):
Balance at Beginning of YearNet ChangeBalance at End of Year
2023$109.8 $(0.8)$109.0 
2022$109.6 $0.2 $109.8 
2021$104.0 $5.6 $109.6 
The Company receives an income tax benefit for exercised stock options calculated as the difference between the fair market value of the stock issued at the time of exercise and the option exercise price, tax-effected. The Company also receives an income tax benefit for restricted stock units when they vest, measured as the fair market value of the stock issued at the time of vesting, tax effected. Due to the Company's valuation allowance in the respective periods, there were no net tax benefits recognized from share-based transactions for the years ended December 31, 2023, 2022, and 2021.
The Company recognizes accrued interest and penalties on income taxes as a component of income tax expense. As of December 31, 2023, accrued interest and penalties were not material. The Company has not identified any material unrecognized tax positions and as such has no related interest or penalty accruals.
As of December 31, 2023, tax years 2020 and later are open to audit by the tax authorities. The Company does not believe that the result of any potential audits will have a material adverse effect on its results of operations, financial condition or liquidity.