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Income Taxes
 9 Months Ended
Sep. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income taxes
Effective September 1, 2021, the LLC’s parent (i.e., the Trust) elected to be treated as a corporation for U.S federal income tax purposes. Prior to September 1, 2021, the Company’s items of income, gain, loss and deduction flowed through to owners of the Trust without being subject to income taxes at the Trust level. Consequently, the Company’s earnings did not reflect a provision for income taxes except those for foreign, state, city and local income taxes incurred at the entity level. From and after September 1, 2021, the Trust will be subject to entity-level U.S. federal, state, and local corporate income taxes on the Company’s earnings that flow through to the Trust. However, the Trust itself will no longer be taxed as a flow through entity for U.S. federal income tax purposes. Trust shareholders will no longer receive Schedule K-1’s, nor will Trust shareholders be allocated any pass through income, loss, deduction, expense, or credit (including “UBIT”) from the Trust.
The Company estimates its annual effective tax rate each fiscal quarter and applies that estimated rate to its interim pre-tax earnings. In this regard, the Company reflects the full year’s estimated tax impact of certain unusual or infrequently occurring items and the effects of changes in tax laws or rates in the interim period in which they occur.
The computation of the annual estimated effective tax rate for each interim period requires certain assumptions, estimates, and significant judgment, including with respect to the projected operating income for the year, projections of income earned and taxes incurred in various jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets. The accounting estimates used to compute the provision for income taxes may change as new events occur, as additional information is obtained, as our tax structure changes or as the
tax laws change. Certain foreign operations are subject to foreign income taxation under existing provisions of the laws of those jurisdictions.
The reconciliation between the Federal Statutory Rate and the effective income tax rate for the nine months ended September 30, 2022 and 2021 is as follows:
Nine months ended September 30,
20222021
United States Federal Statutory Rate21.0 %21.0 %
State income taxes (net of Federal benefits) 3.4 5.6 
Foreign income taxes1.6 3.4 
Expenses of Compass Group Diversified Holdings LLC representing a pass through to shareholders (1)
— 29.3 
Impact of subsidiary employee stock options0.7 0.5 
Credit utilization(5.1)(5.6)
Non-recognition of NOL carryforwards11.0 (0.5)
Effect of Tax Act(1.0)(1.6)
Effect of classification of assets held for sale9.0 — 
Other0.4 2.5 
Effective income tax rate41.0 %54.6 %

(1)     The effective income tax rate for the nine months ended September 30, 2021 included a loss at the Trust, which was taxed as a partnership through August 31, 2021. Beginning September 1, 2021, the Trust is taxed as a corporation.