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Income Taxes
 6 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 8: Income Taxes

 

The Company terminated its status as a Subchapter S corporation as of May 5, 2021, in connection with the IPO and became a taxable C Corporation. Prior to that date, as an S Corporation, the Company had no U.S. federal income tax expense. As such, any periods prior to May 5, 2021 will only reflect an effective state income tax rate and corresponding tax expense. Pro forma net income is calculated by adding back S Corporation tax to net income and using a combined C Corporation effective tax rate for federal and state income taxes of 29.56%. The following reconciliation table provides a detailed calculation of pro forma provision for income taxes:

                 
   For the three months ended   For the six months ended 
(in thousands)  June 30, 2021   June 30, 2020   June 30, 2021   June 30, 2020 
Net income before provision for income taxes  $10,562   $10,491   $21,222   $17,756 
Pro forma tax rate   29.56%   29.56%   29.56%   29.56%
Pro forma provision for income taxes  $3,122   $3,101   $6,273   $5,249 

 

In conjunction with the termination of the Subchapter S corporation status, the C Corporation deferred tax assets and liabilities were estimated for future tax consequences attributable to differences between the financial statement carrying amounts of the Company’s existing assets and liabilities and their respective tax bases. The deferred tax assets and liabilities were measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of the change in tax rates resulting from becoming a C Corporation was recognized as a net deferred tax asset of $5.4 million and a reduction to the provision for income taxes of $4.6 million during the three and six months ended June 30, 2021.

 

The provision for income tax for the three and six months ended June 30, 2021 and 2020 differs from the statutory federal rate of 21% due to the following items, which relate primarily to the Company’s conversion from an S Corporation to a C Corporation:

                 
   For the three months ended   For the six months ended 
(in thousands)  June 30, 2021   June 30, 2020   June 30, 2021   June 30, 2020 
Statutory U.S. federal income tax  $2,218   $2,203   $4,457   $3,279 
Increase (decrease) resulting from:                    
Benefit of S Corporation status   (766)   (2,203)   (3,004)   (3,279)
State taxes   1,444    368    1,825    627 
C Corp conversion federal rate change   1,484    —    1,484    — 
Deferred tax asset adjustment   (4,638)   —    (4,638)   — 
Other   992    —    992    — 
Provision for income taxes  $734   $368   $1,116   $627 

 

For the three and six months ended June 30, 2021, the Company’s effective tax rate differed from the statutory California tax rate of 3.50% used prior to May 5, 2021 and the statutory federal and state tax rate, net of federal benefit, of 29.56%, used May 5, 2021 and after, as the effective tax rate primarily represents the weighted average rate between the S Corporation tax rate of 3.50% and the C Corporation tax rate of 29.56% based on the number of days the Company was each type of corporation during 2021.