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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of the Company’s provision for income taxes were as follows (in thousands):
| December 31,
| 2023 |  | 2022 |  | 2021
Current |  |  |  |  |
Federal | $ | 20,008 |  |  | $ | 16,731 |  |  | $ | 17,790 |
State | 5,482 |  |  | 1,542 |  |  | 5,357 |
Total current provision | 25,490 |  |  | 18,272 |  |  | 23,147 |
Deferred |  |  |  |  |
Federal | (5,954) |  |  | (2,039) |  |  | (3,014) |
State | (1,366) |  |  | 1,307 |  |  | (718) |
Total deferred benefit | (7,320) |  |  | (732) |  |  | (3,732) |
Provision for income taxes | $ | 18,170 |  |  | $ | 17,541 |  |  | $ | 19,415 |
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (“IRA”), which, among other things, implements a 15% alternative minimum tax on corporations with book income in excess of $1 billion, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. The effective date of these provisions was January 1, 2023. The Company has reviewed the provisions of the law and determined that they did not have a material impact on its financial statements. The Company will continue to evaluate the impact of the IRA as further information becomes available. On June 29, 2020, Assembly Bill 85 (“A.B. 85”) was signed into California law. A.B. 85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year. A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more. The carryover period for any net operating losses that are suspended under this provision will be extended. A.B. 85 also states that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022. On February 9, 2022, Senate Bill 113 (“S.B.113”) was signed into law. S.B.113 shortened the previously enacted suspension of net operating loss deductions and eliminated the restrictions on the use of certain business tax credits for taxable years beginning on or after January 1, 2022. The Company was able to partially offset its California taxable income with its net operating losses for the years ended December 31, 2023 and 2022. A reconciliation of income tax expense using the U.S. statutory federal income tax rate to the provision for income taxes is as follows (in thousands):
| December 31,
| 2023 |  | 2022 |  | 2021
Tax expense at U.S. statutory rate | $ | 8,569 |  |  | $ | 8,133 |  |  | $ | 2,083 |
State tax expense, net of federal benefit | 1,828 |  |  | 1,498 |  |  | 606 |
Non-deductible expenses | (831) |  |  | (380) |  |  | 344 |
Stock-based compensation | 3,956 |  |  | 4,921 |  |  | (28,727) |
Excess compensation limitations | 4,365 |  |  | 4,776 |  |  | 45,359 |
Foreign-derived intangible income deduction | — |  |  | (3) |  |  | (455) |
R&D tax credit benefit | — |  |  | — |  |  | (230) |
Uncertain tax positions | 7 |  |  | (39) |  |  | 280 |
Change in valuation allowance | — |  |  | — |  |  | — |
Provision to return true up | 203 |  |  | (1,823) |  |  | (121) |
Other | 73 |  |  | 458 |  |  | 276 |
Provision for income taxes | $ | 18,170 |  |  | $ | 17,541 |  |  | $ | 19,415 |
The Company’s effective tax rate for years ending December 31, 2023, 2022, and 2021 was 44.5%, 45.3%, and 196.90%, respectively. The Company’s effective tax rate in each of 2023 and 2022 is higher than the federal statutory tax rate mainly due to state tax expense and permanent disallowance of certain stock-based compensation for tax purposes. In 2021, the Company’s effective tax rate was further driven up by lower pre-tax book income resulting from one-time IPO charges. As of December 31, 2023 and 2022, the Company recorded no valuation allowance due to its cumulative pretax income position. Significant components of deferred tax balances were as follows (in thousands):
| December 31,
| 2023 |  | 2022
Deferred tax assets |  |  |
Net operating losses | $ | 334 |  |  | $ | 371 |
Uniform capitalization adjustment to inventory | 9,930 |  |  | 5,741 |
Stock-based compensation | 3,959 |  |  | 2,236 |
Accrued compensation and benefits | 1,444 |  |  | 579 |
Lease liability | 11,812 |  |  | 4,837 |
Inventory reserve | 1,407 |  |  | 837 |
Returns reserve | 749 |  |  | 873 |
Sales tax accrual | 406 |  |  | 421 |
Other | 856 |  |  | 969 |
Total deferred tax assets | 30,897 |  |  | 16,864 |
Less: valuation allowance | — |  |  | — |
Total net deferred tax assets | 30,897 |  |  | 16,864 |
Deferred tax liabilities |  |  |
Property and equipment | (1,811) |  |  | (2,028) |
Right-of-use asset | (10,795) |  |  | (3,865) |
Total deferred tax liabilities | (12,606) |  |  | (5,894) |
Net deferred tax assets | $ | 18,291 |  |  | $ | 10,971 |
As of December 31, 2023, the Company had available federal net operating loss (“NOL”) carryforwards of approximately $1.2 million, which begin to expire in 2037. The Company also had available California NOL carryforwards of approximately $1.1 million as of December 31, 2023, which begin to expire in 2038. The usage of the Company’s federal and California NOL carryforwards is subject to the limitations imposed by Section 382 of the Internal Revenue Code. Further, the Company’s California NOL was suspended in 2021. The tax years ending December 31, 2020, through December 31, 2022 remain open and subject to audit by the Internal Revenue Service. The tax years ending December 31, 2019, through December 31, 2022, remain open and subject to audit by state tax authorities. As of December 31, 2023 and 2022, the Company had $0.2 million of uncertain tax positions, excluding interest and penalties. The Company’s policy is to recognize interest and penalties accrued on uncertain tax positions as income tax expense. During the years ended December 31, 2023, 2022, and 2021 interest and penalties were immaterial. There were no activities during the year ended December 31, 2023 related to the uncertain tax positions. The following table summarizes the activity related to our uncertain tax positions during the years ended December 31, 2023 and 2022 (in thousands):
| December 31,
| 2023 |  | 2022
Beginning balance of uncertain tax positions | $ | 167 |  |  | $ | 167 |
Increases related to current year tax positions | — |  |  | — |
Decreases related to current year tax positions | — |  |  | — |
Increases related to prior year tax positions | — |  |  | — |
Changes due to lapse of statute of limitations | — |  |  | — |
Settlement with taxing authorities | — |  |  | — |
Ending balance of uncertain tax positions | $ | 167 |  |  | $ | 167 |

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