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Note 10 - Income Taxes
 12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 10.

INCOME TAXES

 

We are subject to taxation in all jurisdictions in which we operate that impose an income tax on our business activities.

 

The components of the income tax expense for the years ended  December 31, and the tax effects of temporary differences that give rise to deferred taxes at  December 31, are as follows:

 

  

December 31,

 
  

2022

  

2021

 
         

Income tax (provision) benefit:

        

Current federal income tax expense (benefit)

 $-  $- 

Current state income tax expense (benefit)

  256,971   - 

Deferred federal income tax (benefit) expense

  (1,862,601)  13,322,593 

Deferred state income tax (benefit) expense

  (1,890,491)  4,371,387 
         

Total income tax (benefit) expense before valuation allowance

  (3,496,121)  17,693,980 
         

Valuation allowance

  -   - 
         

Total income tax (benefit) expense

 $(3,496,121) $17,693,980 
         

Deferred tax assets:

        

Net operating loss carryforwards

 $7,011,687  $6,831,339 

Tax credits

  643,945   366,366 

Lease liabilities

  15,644,321   16,636,855 

Premium adjustments and IBNR

  906,208   404,891 

Investment in unconsolidated subsidiaries

  245,724   - 

Disallowed interest expense carryforwards

  201,725   - 

Other

  54,714   16,754 

Total deferred tax assets

  24,708,324   24,256,205 

Valuation allowance

  (832,123)  (2,165,808)
         

Net deferred tax assets

 $23,876,201  $22,090,397 
         

Deferred tax liabilities:

        

Property and equipment

 $(14,785,116) $(7,770,312)

Intangibles

  (5,637,973)  (1,480,060)

Right of use assets

  (15,721,959)  (16,810,802)

Investment in unconsolidated subsidiaries

  -   (887,327)

Unrealized gain on securities

  (1,679,572)  (12,892,876)
         

Total deferred tax liabilities

  (37,824,620)  (39,841,377)
         

Net deferred tax liabilities

 $(13,948,419) $(17,750,980)

 

The realization of deferred tax assets, including net operating loss carryforwards, is dependent on the generation of future taxable income sufficient to realize the tax deductions, carryforwards and credits. Valuation allowances on deferred tax assets are recognized if it is determined that it is more likely than not that the asset will not be realized. During the year ended December 31, 2022, we reversed the valuation allowance recorded related to the net deferred tax asset recorded for Yellowstone Acquisition Company which merged with Sky Harbour LLC as part of a business combination on January 25, 2022, effectively removing Yellowstone from the Boston Omaha consolidated financial statements. As of December 31, 2022, the Company has only recorded a valuation allowance against certain state net operating loss deferred tax assets that it has determined to be more-likely-than-not not realizable. During the year ended December 31, 2021, we reversed the overall valuation allowance previously recorded against the net deferred tax asset. Management's decision to reverse the valuation allowance during the first quarter of 2021 was driven by the recognition of significant pre-tax book income and deferred tax liabilities driven by unrecognized gains on securities during the quarter due to the IPO of Dream Finders Homes, Inc. on January 20, 2021.

 

 

As of December 31, 2022, we have available federal tax operating loss carry forwards of approximately $25.4 million. Of the $25.4 million, $0.5 million arose in tax years beginning before December 31, 2017 and may be carried forward 20 years. The remaining tax net operating losses were generated in years beginning after December 31, 2017. Tax net operating loss carry forwards generated in years beginning after December 31, 2017 may be carried forward indefinitely but are only available to offset 80% of future taxable income. We have available state tax operating loss carry forwards of approximately $26.8 million, which are available to reduce future state taxable income and expire at various times and amounts.

 

Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, annual use of our net operating losses may be limited if it is determined that an ownership shift has occurred. An ownership shift is generally defined as a cumulative change in equity ownership by ‘‘5% shareholders’’ that exceeds 50 percentage points over a rolling three-year period. At this time, a Section 382 study has not been performed to determine if such an ownership shift has occurred.

 

A reconciliation between the federal statutory income tax rate and our actual effective income tax rate is as follows:

 

 

  

For the Year Ended December 31,

 
  

2022

  

2021

 
         

Federal income tax at statutory rate

 $795,720  $15,291,464 

State income taxes, net of federal benefit

  (412,633)  4,498,347 

Non-controlling interest

  (38,802)  - 

Provision to return adjustments

  275,920   973,002 

Nondeductible officer's compensation

  -   3,803,973 

Warrant income

  (489,221)  (1,672,815)

Gain on deconsolidation of Yellowstone

  (3,979,091)  - 

Other permanent differences

  58,975   (56,592)

Valuation allowance

  334,861   (5,121,421)

Other

  (41,850)  (21,978)

Total income tax (benefit) expense

 $(3,496,121) $17,693,980 

 

Uncertain Tax Positions

 

We believe that there are no tax positions taken or expected to be taken that would significantly increase or decrease unrecognized tax benefits within 12 months of the reporting date.

 

As of December 31, 2022 we do not have any open or ongoing exams by any taxing authorities. The federal and state statutes of limitation for assessment of tax liability generally lapse three and four years, respectively, after the date the tax returns are filed. However, income tax attributes that are carried forward, such as net operating loss carryforwards, may be challenged and adjusted by taxing authorities at any time prior to the expiration of the statute of limitations for the tax year in which they are utilized.