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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

Income tax expense for the years ended December 31, 2024, 2023, and 2022 is comprised of:

 

(in thousands)

 

2024

  

2023

  

2022

 

Federal, current

 $6,332  $(1,132) $16,123 

Federal, deferred

  2,731   16,624   12,774 

State, current

  2,078   2,575   5,136 

State, deferred

  (596)  (456)  827 

Income tax expense

 $10,545  $17,611  $34,860 

 

Income tax expense for the years ended December 31, 2024, 2023, and 2022 is summarized below:

 

(in thousands)

 

2024

  

2023

  

2022

 

Computed "expected" income tax expense

 $9,631  $15,170  $29,986 

State income taxes, net of federal income tax effect

  1,165   1,674   4,711 

Per diem allowances

  852   862   - 

Tax contingency accruals

  -   (287)  (230)

Tax credits

  (496)  (329)  (379)

Excess tax benefits on share-based compensation

  (975)  (1,811)  (446)

Change in prior year estimates

  (398)  8   (145)

Executive compensation disallowance

  1,068   2,370   1,778 

Other, net

  (302)  (46)  (415)

Income tax expense

 $10,545  $17,611  $34,860 

 

The amount of income tax expense allocated to discontinued operations for TFS is $0.2 million for the years ended December 31, 2024 and 2023, and 2022, respectively.

 

Income tax expense varies from the amount computed by applying the applicable federal corporate income tax rate of 21% for 2024, 2023, and 2022, to income before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which are the effects of the per diem pay structure for drivers, executive compensation disallowance, and excess tax benefits on share-based compensation. Drivers who meet the requirements to receive per diem receive non-taxable per diem pay in lieu of a portion of their taxable wages. This per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes. As a result, salaries, wages, and benefits are slightly lower and our effective income tax rate is higher than the statutory rate. Generally, as pre-tax income increases, the impact of the driver per diem program on effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven, the impact of the per diem program on our effective tax rate is significant. Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future periods based on fluctuations in earnings.

 

The temporary differences and the approximate tax effects that give rise to our net deferred tax liability at December 31, 2024 and 2023 are as follows:

 

(in thousands)

 

2024

  

2023

 

Deferred tax assets:

        

Insurance and claims

 $9,943  $7,958 

Net operating loss carryovers

  4,756   14,550 

Tax credits

  487   347 

Leased liability

  10,640   10,796 

Finance lease obligation

  906   1,416 

State bonus

  3,205   6,760 

Accrued bonus

  3,146   3,198 

Intangibles

  1,394   727 

Other

  3,055   4,195 

Total gross deferred tax assets

  37,532   49,947 

Valuation allowance

  (42)  - 

Total deferred tax assets, net of valuation allowance

  37,490   49,947 
         

Deferred tax liabilities:

        

Property and equipment

  (91,226)  (96,208)

Investment in partnership

  (48,447)  (50,613)

ROU Asset- leases

  (10,203)  (10,371)

Intangibles

  -   (4,088)

Other

  (343)  (563)

Prepaid expenses

  (4,921)  (4,199)

Total deferred tax liabilities

  (155,140)  (166,042)
         

Net deferred tax liability

 $(117,650) $(116,095)

 

The net deferred tax liability of $117.7 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially offset by net operating loss carryovers and insurance claims that have been reserved but not paid. The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits. The Company concluded that there is sufficient positive evidence to recognize existing deferred tax assets, with the exception of an immaterial amount of state attributes that are deemed unrealizable based on the timing of expiration and limited apportionable income.

 

As of December 31, 2024, we had less than $0.1 million of liability recorded for unrecognized tax benefits, which includes interest and penalties of less than $0.1 million. We recognize interest and penalties accrued related to unrecognized tax benefits in tax expense. As of December 31, 2023, we had a $0.1 million liability recorded for unrecognized tax benefits, which included interest and penalties of less than $0.1 million. As of December 31, 2022, we had a $0.4 million liability recorded for unrecognized tax benefits, which included interest and penalties of less than $0.1 million. Interest and penalties recognized for uncertain tax positions provided for de minimus expense in 2024, 2023, and 2022.

 

The following tables summarize the annual activity related to our gross unrecognized tax benefits (in thousands) for the years ended December 31, 2024, 2023, and 2022:

 

  

2024

  

2023

  

2022

 

Balance as of January 1,

 $105  $392  $596 

Decreases related to lapsing of statute of limitations

  (105)  (287)  (204)

Balance as of December 31,

 $-  $105  $392 
 

If recognized, approximately $0.0 million, $0.1 million, and $0.4 million of unrecognized tax benefits would impact our effective tax rate as of December 31, 2024, 2023, and 2022, respectively. Any prospective adjustments to our reserves for income taxes will be recorded as an increase or decrease to our provision for income taxes and would impact our effective tax rate.

 

Our 2021 through 2023 tax years remain subject to examination by the IRS for U.S. federal tax purposes, our major taxing jurisdiction. In the normal course of business, we are also subject to audits by state and local tax authorities. We do not anticipate total unrecognized tax benefits to materially change in the next twelve months.

 

We have $46.4 million of federal net operating loss offsetting current tax in 2024 with no federal net operating losses remaining. Our state net operating loss carryforwards and state tax credits of $99.4 million and $0.6 million, respectively, expire beginning in 2024 and 2029 based on jurisdiction.

 

The American Rescue Plan Act of 2021 (the "ARPA") includes several provisions meant to stimulate the U.S. economy. Of relevance to the Company, ARPA extended the reach of IRC Section 162(m) to include compensation paid to the eight highest-paid individuals other than the chief executive officer and chief financial officer (rather than the three highest), however, this change is not effective until 2027. There is no material impact to the financial statements at this time.

 

We do not anticipate the Inflation Reduction Act (the "IRA") will have a significant impact on income tax expense or on other taxes. One of the most impactful provisions of the IRA includes the establishment of a Corporate Alternative Minimum Tax ("CAMT"). However, this tax only applies to corporations with three-year average earnings in excess of $1.0 billion. We will continue to monitor the CAMT each year to determine if we will become an applicable corporation. Additionally, the IRA enacted an excise tax on stock buybacks, which imposes a 1% tax on stock buybacks, subject to netting provisions regarding stock awarded to employees as part of their compensation. We do not currently have an active buyback program, but will continue to monitor IRS guidance and regulations on how the buyback tax will be imposed and administered.

 

On May 11, 2023, the Tennessee Works Act was signed into law by Governor Lee. The most impactful change for the Company was the phase-in of a single-sales factor apportionment formula for the logistics and leasing companies that file in Tennessee. The motor carriers already apply a single-sales factor. This resulted in the Company recording a $1.2 million benefit during 2023 related to revaluing our deferred tax balances for this change. The original 2023 estimate was updated based on 2024 results and refined apportionment calculations. The revision had minimal effect on the overall deferred tax balance at December 31, 2024.

 

The Organization for Economic Co-operation and Development ("OECD") has released the Base Erosion and Profit Shifting framework 2.0 ("Pillar Two") to introduce a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds. As of December 31, 2024, we have no recorded effects for Pillar Two due to our operational jurisdiction being wholly domestic. The United States has not yet enacted legislation to adopt Pillar Two. We will continue to monitor the impact of this legislation going forward.