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INCOME TAX PROVISION | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
INCOME TAX PROVISION | Income before income taxes was comprised of the following for the years ended December 31:
(in thousands) |  | 2023 |  | 2022 |  | 2021
U.S. |  | $ | (7,636) |  |  | $ | 51,640 |  |  | $ | 62,361 |
Foreign |  | 47,435 |  |  | 32,738 |  |  | 31,442 |
Income before income taxes |  | $ | 39,799 |  |  | $ | 84,378 |  |  | $ | 93,803 |
The components of the income tax provision were as follows for the years ended December 31:
(in thousands) |  | 2023 |  | 2022 |  | 2021
Current tax provision: |  |  |  |  |  |
Federal |  | $ | 20,999 |  |  | $ | 27,789 |  |  | $ | (61) |
State |  | 6,331 |  |  | 8,507 |  |  | 2,389 |
Foreign |  | 18,118 |  |  | 11,081 |  |  | 10,945 |
Total current tax provision |  | 45,448 |  |  | 47,377 |  |  | 13,273 |
Deferred tax provision: |  |  |  |  |  |
Federal |  | (20,357) |  |  | (21,368) |  |  | 15,889 |
State |  | (4,389) |  |  | (5,710) |  |  | 1,958 |
Foreign |  | (7,130) |  |  | (1,451) |  |  | (89) |
Total deferred tax provision |  | (31,876) |  |  | (28,529) |  |  | 17,758 |
Income tax provision |  | $ | 13,572 |  |  | $ | 18,848 |  |  | $ | 31,031 |
The effective tax rate on pretax income reconciles to the U.S. federal statutory tax rate for the years ended December 31 as follows:
|  | 2023 |  | 2022 |  | 2021
Income tax at federal statutory rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Change in valuation allowances |  | 17.5 | % |  | 7.2 | % |  | 0.1 | %
Tax impact of share-based compensation |  | 6.7 | % |  | 3.2 | % |  | 0.9 | %
Tax on repatriation of foreign earnings |  | 6.2 | % |  | 2.2 | % |  | 4.9 | %
Foreign tax rate differences |  | 5.7 | % |  | 1.9 | % |  | 1.7 | %
Non-deductible executive compensation |  | 4.1 | % |  | 2.2 | % |  | 1.7 | %
Return to provision adjustments |  | 2.0 | % |  | (1.9 | %) |  | — |
State income tax expense, net of federal income tax benefit |  | 2.0 | % |  | 2.7 | % |  | 2.4 | %
Change in state deferred income tax rates |  | 1.7 | % |  | 0.3 | % |  | 0.1 | %
Non-deductible acquisition costs |  | 0.2 | % |  | 0.1 | % |  | 1.5 | %
Business exits (Note 6) |  | (30.2 | %) |  | (15.8 | %) |  | — |
Research and development tax credit |  | (3.0 | %) |  | (1.2 | %) |  | (0.9 | %)
Other |  | 0.2 | % |  | 0.4 | % |  | (0.3 | %)
Effective tax rate |  | 34.1 | % |  | 22.3 | % |  | 33.1 | %
In June 2023, we completed the sale of our North American web hosting business, and in May 2022, we completed the sale of our Australian web hosting business. We recognized capital losses on these transactions for tax purposes, and we recorded valuation allowances for the portion of the capital loss carryovers that we do not currently expect to realize. In December 2023, we executed an agreement allowing for the conversion of our Canadian payroll and human resources services customers to another service provider. We recognized a capital gain on this transaction for tax purposes, which we were able to partially offset with capital loss carryforwards. The capital loss carryforwards had been previously offset with a valuation allowance, and as such, we reversed the previously recognized valuation allowance. We repatriated foreign earnings held in cash by our Canadian subsidiaries of $32,931 during 2023, $25,526 during 2022 and $85,285 during 2021. The associated tax expense included in the income tax provision was $2,168 in 2023, $1,818 in 2022 and $4,555 in 2021. We believe the accumulated and remaining cash of our Canadian subsidiaries is sufficient to meet their working capital needs. The historical unremitted Canadian earnings as of December 31, 2021 will continue to be reinvested indefinitely in the operations of those subsidiaries. Deferred income taxes have not been recognized on those earnings as of December 31, 2023. If we were to repatriate our foreign cash and cash equivalents into the U.S. at one time, the tax effects would generally be limited to foreign withholding taxes on any such distribution. As of December 31, 2023, the amount of cash and cash equivalents held by our foreign subsidiaries was $25,270, primarily in Canada. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding accrued interest and penalties and the federal benefit of deductible state income tax, was as follows:
(in thousands) |  | 2023 |  | 2022 |  | 2021
Balance, beginning of year |  | $ | 2,635 |  |  | $ | 2,551 |  |  | $ | 3,361 |
Additions for tax positions of current year |  | 249 |  |  | 250 |  |  | 169 |
Additions for tax positions of prior years |  | 91 |  |  | 270 |  |  | 8 |
Reductions for tax positions of prior years |  | — |  |  | (45) |  |  | (673) |
Settlements |  | (303) |  |  | — |  |  | — |
Lapse of statutes of limitations |  | (282) |  |  | (391) |  |  | (314) |
Balance, end of year |  | $ | 2,390 |  |  | $ | 2,635 |  |  | $ | 2,551 |
If the unrecognized tax benefits as of December 31, 2023 were recognized in the consolidated financial statements, income tax expense would decrease $2,390. Accruals for interest and penalties, excluding the tax benefits of deductible interest, were $583 as of December 31, 2023 and $731 as of December 31, 2022. Our income tax provision included expense for interest and penalties of $70 in 2023, $97 in 2022 and $84 in 2021. We believe that it is reasonably possible that a decrease of up to $1,300 in unrecognized tax benefits may be necessary within the next 12 months, primarily related to the lapse of statutes of limitations. We also believe it is reasonably possible that an increase of up to $2,000 in unrecognized tax benefits may be necessary within the next 12 months, related to potential legislative and regulatory changes in certain state and local jurisdictions. Due to the nature of the underlying liabilities and the extended time frame often needed to resolve income tax uncertainties, we cannot provide reliable estimates of the amount or timing of cash payments that may be required to settle these liabilities. The statute of limitations for federal tax assessments for 2019 and prior years has expired. In general, income tax returns for the years 2020 through 2023 remain subject to examination by federal, foreign, state and city tax jurisdictions. In the event that we have determined not to file income tax returns with a particular state or city, all years remain subject to examination by the tax jurisdiction. The ultimate outcome of tax matters may differ from our estimates and assumptions. Unfavorable settlement of any particular issue would require the use of cash and could result in increased income tax expense. Favorable resolution would result in reduced income tax expense. Tax-effected temporary differences that gave rise to deferred tax assets and liabilities as of December 31 were as follows:
|  | 2023 |  | 2022
(in thousands) |  | Deferred tax assets |  | Deferred tax liabilities |  | Deferred tax assets |  | Deferred tax liabilities
Goodwill |  | $ | — |  |  | $ | 40,572 |  |  | $ | — |  |  | $ | 30,848 |
Employee benefit plans |  | — |  |  | 14,482 |  |  | — |  |  | 11,009 |
Cloud computing arrangements |  | — |  |  | 10,337 |  |  | — |  |  | 13,969 |
Revenue recognition |  | — |  |  | 7,187 |  |  | — |  |  | 7,312 |
Prepaid assets |  | — |  |  | 5,385 |  |  | — |  |  | 5,474 |
Property, plant and equipment |  | — |  |  | 4,529 |  |  | 3,139 |  |  | — |
Acquisition costs |  | — |  |  | 1,604 |  |  | — |  |  | 1,691 |
Operating leases |  | 20,078 |  |  | 15,923 |  |  | 16,681 |  |  | 12,387 |
Deductible interest carryforward |  | 34,038 |  |  | — |  |  | 16,403 |  |  | — |
Net operating loss, tax credit and capital loss carryforwards |  | 22,639 |  |  | — |  |  | 16,720 |  |  | — |
Reserves and accruals |  | 9,522 |  |  | — |  |  | 6,935 |  |  | — |
Gain on payroll and human resources business exit (Note 6) |  | 6,100 |  |  | — |  |  | — |  |  | — |
Intangible assets |  | 4,510 |  |  | — |  |  | — |  |  | 16,901 |
Inventories |  | 2,804 |  |  | — |  |  | 2,018 |  |  | — |
Deferred revenue |  | 1,406 |  |  | — |  |  | 2,951 |  |  | — |
All other |  | 670 |  |  | 719 |  |  | 954 |  |  | 1,768 |
Total deferred taxes |  | 101,767 |  |  | 100,738 |  |  | 65,801 |  |  | 101,359 |
Valuation allowances |  | (14,984) |  |  | — |  |  | (7,996) |  |  | — |
Net deferred taxes |  | $ | 86,783 |  |  | $ | 100,738 |  |  | $ | 57,805 |  |  | $ | 101,359 |
The valuation allowances as of December 31, 2023 and December 31, 2022 related primarily to capital loss carryforwards in the U.S and net operating loss carryforwards in various state jurisdictions that we do not currently expect to fully realize. Changes in our valuation allowances for the years ended December 31 were as follows:
(in thousands) |  | 2023 |  | 2022 |  | 2021
Balance, beginning of year |  | $ | (7,996) |  |  | $ | (10,993) |  |  | $ | (11,453) |
Expense from change in allowances |  | (6,979) |  |  | (6,086) |  |  | (65) |
Sale of business (Note 6) |  | — |  |  | 8,745 |  |  | — |
Foreign currency translation |  | (9) |  |  | 338 |  |  | 525 |
Balance, end of year |  | $ | (14,984) |  |  | $ | (7,996) |  |  | $ | (10,993) |
As of December 31, 2023, we had the following net operating loss, deductible interest, capital loss and tax credit carryforwards: •state net operating loss carryforwards and tax credit carryforwards of $125,881 that expire at various dates between 2024 and 2050; •federal deductible interest carryforwards of $127,238 that do not expire; and •federal capital loss carryforwards of $57,096 that expire in 2027 and 2028.

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