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Note 12 - Income Taxes
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

12.

Income Taxes

 

Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

The current and deferred portions (in thousands) of our federal, foreign, and state and other income tax expenses or benefits are as follows:

 

  

For the Year Ended December 31,

 
  

2023

  

2022

 

Federal income tax (expense):

        

Current tax benefit

 $11,536  $4,352 

Deferred tax (expense)

  (34,056)  (16,623)

Total federal income tax (expense)

 $(22,520) $(12,271)

Foreign income tax (expense):

        

Current tax (expense)

 $(124) $(183)

Deferred tax benefit

  10   3 

Total foreign income tax (expense)

 $(114) $(180)

State and other income tax (expense):

        

Current tax (expense) benefit

 $(191) $2,146 

Deferred tax (expense)

  (3,779)  (4,355)

Total state and other income tax (expense)

 $(3,970) $(2,209)

Total income tax (expense)

 $(26,604) $(14,660)

 

We experienced an effective income tax expense rate of 20.6% and 9.8% for the years ended December 31, 2023, and December 31, 2022, respectively. Our effective income tax expense rates for these years are below the statutory rate principally due to (1) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’ grant date values and (2) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes. Offsetting the above factors are the effects on our effective tax rate of state and foreign income tax expense, taxes on global intangible low-taxed income, and executive compensation deduction limitations under Section 162(m) of the Code. Further details related to the above are reflected in the table below reconciling our effective income tax expense rate to the statutory rate.

 

We report income tax-related interest and penalties (including those associated with both our accrued liabilities for uncertain tax positions and unpaid tax liabilities) within our income tax line item on our consolidated statements of income. We likewise report the reversal of income tax-related interest and penalties within such line item to the extent we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals therefor. We recognized $0.4 million in potential interest expense associated with uncertain tax positions during the year ended December 31, 2023, compared to de minimis interest expense experienced in 2022.

 

The following table reconciles our effective income tax expense rate to the statutory rate for 2023 and 2022:

 

  

For the Year Ended December 31,

 
  

2023

  

2022

 

Statutory federal expense rate

  21.0

%

  21.0

%

(Decrease) increase in statutory federal tax expense rate resulting from:

        

Share-based compensation

  (2.3)  (10.5)

Section 162(m) of the Code executive compensation deduction limitations

  2.3   0.2 

Net interest and penalties related to uncertain tax positions and unpaid tax liabilities

  0.1   0.1 

Interest expense on preferred stock classified as debt for tax purposes

  (2.6)  (2.3)

Foreign taxes

  (0.2)  (0.2)

State taxes, net of federal tax benefit

  3.9   2.7 

Valuation allowances changes affecting the provision for income taxes

  (1.5)  (1.3)

Prior year provision to return reconciling items, tax effects of non-controlling interests, and other

  (0.4)  (0.1)

Global intangible low-taxed income tax

  0.3   0.2 

Effective tax expense rate

  20.6

%

  9.8

%

 

As of December 31, 2023, and December 31, 2022, the respective significant components (in thousands) of our deferred tax assets and liabilities (which are included as a component of our Income tax liability on our consolidated balance sheets) were:

 

  

As of December 31,

 
  

2023

  

2022

 

Deferred tax assets:

        

Capitalized research and experimentation expenditures and fixed assets

 $1,612  $1,445 

Provision for credit loss

  1,791   1,716 

Credit card and other loans receivable fair value election differences

  54,208   70,966 

Equity-based compensation

  1,594   1327 

Accrued expenses

  183   156 

Accruals for state taxes and interest associated with unrecognized tax benefits and unpaid accrued tax liabilities

  235   195 

Federal net operating loss carry-forwards

  35,199   22,626 

Federal credit carry-forward

  231   — 

Foreign net operating loss carry-forward

  221   304 

Other

  1,609   1056 

State tax benefits, primarily from net operating losses

  26,550   28,796 

Deferred tax assets, gross

 $123,433  $128,587 

Valuation allowances

  (18,729)  (20,699)

Deferred tax assets, net of valuation allowances

 $104,704  $107,888 

Deferred tax (liabilities):

        

Prepaid expenses and other

 $(1,096) $(1,030)

Equity in income of equity-method investee

  (945)  (792)

Market discount on acquired marked discount bonds

  (190,918)  (155,879)

Deferred costs

  (24)  (641)

Deferred tax (liabilities), gross

 $(192,983) $(158,342)

Deferred tax (liabilities), net

 $(88,279) $(50,454)

 

We undertook a detailed review of our deferred taxes and determined that a valuation allowance was required for certain deferred tax assets in state tax jurisdictions within the U.S. and in the U.K. We reduce our deferred tax assets by valuation allowances if it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible. In making our valuation allowance determinations, we consider all available positive and negative evidence affecting specific deferred tax assets, including our past and anticipated future performance, the reversal of deferred tax liabilities, the length of carry-back and carry-forward periods, and the implementation of tax planning strategies. Because our valuation allowance evaluations require consideration of future events, significant judgment is required in making the evaluations, and our conclusions could be materially different if our expectations are not met. Our valuation allowances totaled $18.7 million and $20.7 million as of December 31, 2023, and December 31, 2022, respectively.

 

Certain of our deferred tax assets relate to federal, foreign, and state net operating losses, and we have no other net operating loss, capital loss, or credit carryforwards other than those noted herein. We have recorded a federal deferred tax asset of $35.2 million (based on indefinite-lived federal net operating loss carryforwards of $167.3 million). We have recorded state deferred tax assets of $26.5 million based on state net operating loss carryforwards, some of which are indefinite-lived and some which expire in various years beginning in 2024; valuation allowances of $18.2 million have be recorded, however, against the $26.5 million of such state deferred tax assets.

 

Our subsidiaries file federal, foreign, and/or state and other income tax returns. In the normal course of our business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the U.S., the U.K., and various U.S. states and territories. With a few exceptions of a non-material nature, we are no longer subject to federal, state, local, or foreign income tax examinations for years prior to 2019.

 

Roll-forwards (in thousands) of our unrecognized tax benefits (excluding accrued interest related thereto of $1.1 million as of December 31, 2023, and $0.9 million as of December 31, 2022) from the beginning to the end of 2023 and 2022, respectively, are as follows: 

 

  

2023

  

2022

 

Balance at January 1,

 $(22,692) $(605)

Reductions based on tax positions related to prior years

  21,983   79 

(Additions) based on tax positions related to prior years

  —   (11,965)

(Additions) based on tax positions related to the current year

  (29)  (10,201)

Balance at December 31,

 $(738) $(22,692)

 

Our unrecognized tax benefits that, if recognized, would affect our effective tax expense rate are not material at only $1.1million and $0.9 million as of  December 31, 2023, and December 31, 2022, respectively.