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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | Income TaxesFor U.S. federal income tax purposes, we elected to be treated as a REIT under the Code. To qualify as a REIT, we must meet certain organizational and operational stipulations, including a requirement that we distribute at least 90% of our REIT taxable income, excluding net capital gains, to our stockholders. We currently intend to adhere to these requirements and maintain our REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income taxes at regular corporate rates (including any applicable alternative minimum tax prior to December 31, 2017) and may not qualify as a REIT for four years that are subsequently taxable. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes as well as to federal income and excise taxes on our undistributed taxable income. At December 31, 2022, all of our 100 hotel properties and WorldQuest were leased or owned by Ashford TRS (our taxable REIT subsidiaries). Ashford TRS recognized net book income (loss) of $44.2 million, $31.1 million and $(142.0) million for the years ended December 31, 2022, 2021 and 2020, respectively. The following table reconciles the income tax (expense) benefit at statutory rates to the actual income tax (expense) benefit recorded (in thousands):
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Income tax (expense) benefit at federal statutory income tax rate of 21% | $ | (9,291) |  |  | $ | (6,513) |  |  | $ | 29,811 |
State income tax (expense) benefit, net of U.S. federal income tax benefit | (1,219) |  |  | (413) |  |  | 4,014 |
Permanent differences | (2,342) |  |  | (238) |  |  | 415 |
Provision to return adjustment | 1,971 |  |  | 60 |  |  | (228) |
Gross receipts and margin taxes | (506) |  |  | (199) |  |  | (347) |
Interest and penalties | (199) |  |  | (18) |  |  | (13) |
Valuation allowance | 5,250 |  |  | 1,373 |  |  | (32,317) |
Total income tax (expense) benefit | $ | (6,336) |  |  | $ | (5,948) |  |  | $ | 1,335 |
The components of income tax (expense) benefit are as follows (in thousands):
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |
Federal | $ | (4,616) |  |  | $ | (4,950) |  |  | $ | 826 |
State | (1,773) |  |  | (885) |  |  | (549) |
Total current income tax (expense) benefit | (6,389) |  |  | (5,835) |  |  | 277 |
Deferred: |  |  |  |  |
Federal | 53 |  |  | (113) |  |  | 927 |
State | — |  |  | — |  |  | 131 |
Total deferred income tax (expense) benefit | 53 |  |  | (113) |  |  | 1,058 |
Total income tax (expense) benefit | $ | (6,336) |  |  | $ | (5,948) |  |  | $ | 1,335 |
For the years ended December 31, 2022, 2021 and 2020 income tax expense includes interest and penalties paid to taxing authorities of $199,000, $18,000 and $11,000, respectively. Additionally, in 2020 we received interest income of $19,000 included in income tax expense. At December 31, 2022 and 2021, we determined that there were no material amounts to accrue for interest and penalties due to taxing authorities. At December 31, 2022 and 2021, our deferred tax asset (liability) and related valuation allowance consisted of the following (in thousands):
| December 31,
| 2022 |  | 2021
Allowance for doubtful accounts | $ | 104 |  |  | $ | 93 |
Unearned income | 950 |  |  | 1,119 |
Federal and state net operating losses | 22,367 |  |  | 28,553 |
Capital loss carryforward | 7,440 |  |  | 7,442 |
Accrued expenses | 1,781 |  |  | 1,466 |
Prepaid expenses | (22) |  |  | (44) |
Tax property basis less than book basis | (2,483) |  |  | (2,302) |
Tax derivatives basis greater than book basis | 315 |  |  | 322 |
Other | 321 |  |  | 1,676 |
Deferred tax asset (liability) | 30,773 |  |  | 38,325 |
Valuation allowance | (31,205) |  |  | (38,810) |
Net deferred tax asset (liability) | $ | (432) |  |  | $ | (485) |
At December 31, 2022, we had TRS NOLs for U.S. federal income tax purposes of $90.3 million, however our utilization of such NOLs to offset TRS taxable income is limited to approximately $7.3 million per year through 2025, and $1.2 million per year thereafter under Section 382 of the Internal Revenue Code. NOLs become subject to an annual limitation in the event of certain cumulative changes in the ownership of significant shareholders over a three-year period in excess of 50%, as defined under Section 382 of the Internal Revenue Code. Also in total $9.9 million of our TRS NOLs are subject to expiration and will begin to expire in 2023. The remainder was generated after December 31, 2017 and is not subject to expiration under the Tax Cuts and Jobs Act. At December 31, 2022, Ashford Hospitality Trust, Inc., our REIT, had NOLs for U.S. federal income tax purposes of $1.1 billion based on the latest filed tax returns. Utilization of the REIT NOLs subject to Section 382 are limited to approximately $37.2 million per year through 2025, and $9.4 million per year thereafter. $426.1 million of our net operating loss carryforward will begin to expire in 2023 and is available to offset future taxable income, if any, through 2036. The remainder was generated after December 31, 2017 and is not subject to expiration under the Tax Cuts and Jobs Act. At December 31, 2022 and 2021, we maintained a valuation allowance of $31.2 million and $38.8 million, respectively. At December 31, 2022 and 2021, we have reserved certain deferred tax assets of our TRS entities as we believe it is more likely than not that these deferred tax assets will not be realized. We considered all available evidence, both positive and negative. We concluded that the objectively verifiable negative evidence of a history of consolidated losses and the limitations imposed by the Code on the utilization of net operating losses of acquired subsidiaries outweigh the positive evidence. We believe this treatment is appropriate considering the nature of the intercompany transactions and leases between the REIT and its subsidiaries and that the current level of taxable income at the TRS is primarily attributable to our current transfer pricing arrangements. The transfer pricing arrangements are renewed upon expiration. All existing leases were extended and terms amended in 2020 to reflect the economic impact of COVID-19. Outside consultants prepared the transfer pricing studies supporting the rents from the leases. Outside consultants will continue to provide transfer pricing studies on any newly acquired properties. The intercompany rents are determined in accordance with the arms’ length transfer pricing standard, taking into account the cost of ownership to the REIT among other factors. We do not recognize deferred tax assets and a valuation allowance for the REIT since the REIT distributes its taxable income as dividends to stockholders, and in turn, the stockholders incur income taxes on those dividends. The following table summarizes the changes in the valuation allowance (in thousands):
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Balance at beginning of year | $ | 38,810 |  |  | $ | 40,029 |  |  | $ | 7,712 |
Additions | — |  |  | — |  |  | 32,317 |
Deductions | (7,605) |  |  | (1,219) |  |  | — |
Balance at end of year | $ | 31,205 |  |  | $ | 38,810 |  |  | $ | 40,029 |
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law and includes certain income tax provisions relevant to businesses. The Company was required to recognize the effect on the consolidated financial statements in the period the law was enacted. For the year ended December 31, 2020, the CARES Act allowed us to record a tax benefit of $858,000 for the 2020 net operating loss at our TRS that was carried back to prior tax years.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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