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Note 12 - Income Taxes
 12 Months Ended
Dec. 31, 2024
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,

 
  

2024

  

2023

 

Federal income tax (expense):

        

Current tax benefit

 $1,916  $11,536 

Deferred tax (expense)

  (24,946)  (34,056)

Total federal income tax (expense)

 $(23,030) $(22,520)

Foreign income tax (expense):

        

Current tax (expense)

 $(142) $(124)

Deferred tax (expense) benefit

  (1)  10 

Total foreign income tax (expense)

 $(143) $(114)

State and other income tax (expense):

        

Current tax benefit (expense)

 $248  $(191)

Deferred tax (expense)

  (5,546)  (3,779)

Total state and other income tax (expense)

 $(5,298) $(3,970)

Total income tax (expense)

 $(28,471) $(26,604)

 

We experienced an effective income tax expense rate of 20.4% and 20.6% for the years ended December 31, 2024, and December 31, 2023, respectively. Our effective income tax expense rate for the year ended December 31, 2024, is below the statutory rate principally due to (1) 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 and (2) a loss related to our unrecovered investment in a foreign subsidiary which ceased operations during the year and with respect to which we had used “permanently reinvested earnings” accounting in our consolidated financial statements. Our effective income tax expense rate for the year ended December 31, 2023, is below the statutory rate principally due to 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. 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 $0.6 million and $0.4 million in potential interest associated with uncertain tax positions during the years ended December 31, 2024, and December 31, 2023, respectively. 

 

The following table reconciles the statutory federal expense rate to our effective income tax expense rate for 2024 and 2023:

 

  

For the Year Ended December 31,

 
  

2024

  

2023

 

Statutory federal expense rate

  21.0

%

  21.0

%

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

        

Share-based compensation

  (0.1)  (2.3)

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

  0.2   2.3 

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

  (2.3)  (2.6)

Foreign taxes

  (0.2)  (0.2)

State taxes, net of valuation allowance changes affecting the provision of income taxes and federal tax benefit

  3.0   2.4 

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

  (0.1)  (0.4)

Global intangible low-taxed income tax

  0.3   0.3 

Loss on foreign subsidiary liquidation

  (1.5)  — 

Effective income tax expense rate

  20.4

%

  20.6

%

 

As of December 31, 2024, and December 31, 2023, 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,

 
  

2024

  

2023

 

Deferred tax assets:

        

Capitalized research and experimentation expenditures and fixed assets

 $1,960  $1,612 

Provision for credit loss

  4,640   1,791 

Credit card and other loans receivable fair value election differences

  23,863   54,208 

Equity-based compensation

  1,739   1,594 

Accrued expenses

  238   183 

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

  271   235 

Federal net operating loss carryforwards

  58,225   35,199 

Federal credit carryforwards

  839   231 

Foreign net operating loss carryforwards

  —   221 

Other

  1,485   1,609 

State tax benefits, primarily from net operating losses

  24,756   26,550 

Deferred tax assets, gross

 $118,016  $123,433 

Valuation allowances

  (14,307)  (18,729)

Deferred tax assets, net of valuation allowances

 $103,709  $104,704 

Deferred tax (liabilities):

        

Prepaid expenses and other

 $(1,396) $(1,096)

Equity in income of equity-method investee

  (1,291)  (945)

Market discount on acquired marked discount bonds

  (219,762)  (190,918)

Deferred costs

  (31)  (24)

Deferred tax (liabilities), gross

 $(222,480) $(192,983)

Deferred tax (liabilities), net

 $(118,771) $(88,279)

 

We undertook a detailed review of our deferred assets taxes and determined that valuation allowances were required for certain deferred tax assets in state tax jurisdictions within the U.S. 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 will be 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 $14.3 million and $18.7 million as of December 31, 2024, and December 31, 2023, respectively.

 

Certain of our deferred tax assets relate to federal and state net operating losses and federal tax credit carryforwards, and we have no other net operating loss, or credit carryforwards other than those noted herein. We have recorded a federal deferred tax asset of $59.1 million (based on indefinite-lived federal net operating loss carryforwards of $277.3 million and federal tax credit carryforwards of $.8 million). We have recorded state deferred tax assets of $24.8 million based on state net operating loss carryforwards, some of which are indefinite-lived and some of which expire in various years beginning in 2025; valuation allowances of $14.3 million have been recorded, however, against the $24.8 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. 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 income tax examinations for years prior to 2020.

 

Reconciliations (in thousands) of our unrecognized tax benefits (excluding accrued interest related thereto of $1.3 million as of December 31, 2024, and $1.1 million as of December 31, 2023) from the beginning to the end of 2024 and 2023, respectively, are as follows: 

 

  

2024

  

2023

 

Balance at January 1,

 $(738) $(22,692)

Reductions based on tax positions related to prior years

  72   21,983 

(Additions) based on tax positions related to prior years

  (8)  — 

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

  (37)  (29)

Balance at December 31,

 $(711) $(738)

 

Our unrecognized tax benefits that, if recognized, would affect our effective income tax expense rate are not material at only $1.3 million and $1.1 million as of  December 31, 2024, and December 31, 2023, respectively.