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INCOME TAXES

12 Months Ended

Dec. 31, 2020

NOTE 7: INCOME TAXES

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which provided a variety of tax incentives for businesses to counter the effects of the COVID -19 pandemic. The CARES Act did not have a material impact on the Company’s consolidated financial statements.

The Tax Cuts and Jobs Act of 2017 (“the Act”), effective January 1, 2018, included a reduction to the US federal tax rate from 35 percent to 21 percent and resulted in adjustments in the carrying amounts of deferred tax assets and liabilities for the new corporate income tax rate, and modified the calculation of deductible compensation of our executive officers. Included among other international provisions, the Act provides for a deduction on certain qualifying income related to export sales of property or services referred to as Foreign Derived Intangible Income (“FDII”), and the elimination of the US manufacturing deduction.

In accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 118, the Company completed its accounting for the provisional amounts recognized under the Act as of December 31, 2017 and recorded a reduction in tax expense of $0.1 million, in the fourth quarter of 2018. The 2020 tax expense includes an estimated tax benefit associated with FDII of $103 thousand.

The following table lists the components of the provision for income taxes:


Years ended December 31,	2020		2019		2018
(in thousands)
Current provision:
Federal	$	4,741	$	6,637	$	6,173
State		582		202		616
Deferred (benefit) provision:
Federal		(410)		(715)		384
State		99		95		(6)
Total income tax provision	$	5,012	$	6,219	$	7,167

A reconciliation between the federal statutory rate and Marine Products’ effective tax rate is as follows:


Years ended December 31,	2020		2019		2018
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	1.4		1.0		1.5
Research and experimentation credit	(1.5)		(1.2)		(0.8)
Non-deductible expenses	0.1		(0.7)		0.4
Change in contingencies	0.1		(0.1)		0.4
Adjustments related to the Act	—		—		(0.3)
Adjustments related to vesting of restricted stock	(1.5)		(1.5)		(1.8)
Other	0.9		(0.5)		(0.3)
Effective tax rate	20.5	%	18.0	%	20.1	%

Significant components of the Company’s deferred tax assets and liabilities are as follows:


December 31,	2020		2019
(in thousands)
Deferred tax assets:
Warranty costs	$	1,107	$	1,190
Sales incentives and discounts		278		404
Stock-based compensation		717		696
Pension		2,365		2,002
State NOL’s		423		484
State credits		1,818		1,818
All others		635		560
Valuation allowance		(1,818)		(1,818)
Total deferred tax assets		5,525		5,336
Deferred tax liabilities:
Depreciation and amortization expense		(965)		(947)
Basis differences in joint venture		(485)		(399)
Net deferred tax assets	$	4,075	$	3,990

Total net income tax payments were $4,099,000 in 2020, $7,330,000 in 2019, and $6,290,000 in 2018. As of December 31, 2020, the Company had net operating loss carryforwards related to state income taxes of approximately $10.6 million and other state credits of approximately $2.3 million (gross) that will expire between 2021 and 2035. The Company does not have a valuation allowance related to net operating loss carryforwards due to implemented tax planning strategies. The Company has a valuation allowance against the corresponding deferred tax asset on all state tax credits because, at this time, the Company does not expect to utilize them.

The Company’s policy is to record interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties were immaterial as of December 31, 2020 and 2019.

During 2020, the Company recognized an increase in its liability for unrecognized tax benefits related primarily to state income taxes. The liability, if recognized, would affect our effective rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	2020		2019
Balance at January 1	$	358,000	$	393,000
Additions (reductions) based on tax positions related to the current year		34,000		(28,000)
Additions (reductions) for tax positions of prior years		9,000		(7,000)
Balance at December 31	$	401,000	$	358,000

It is reasonably possible that the amount of the unrecognized benefits with respect to the Company’s unrecognized tax positions will increase or decrease in the next 12 months. These changes may be the result of, among other things, state tax settlements under voluntary disclosure agreements. However, quantification of an estimated range cannot be made at this time.

The Company and its subsidiaries are subject to U.S. federal and state income tax in multiple jurisdictions. In many cases, the uncertain tax positions are related to tax returns that remain open and subject to examination by the relevant taxing authorities. The Company’s 2016 through 2019 tax returns remain open to examination. Additional years may be open to the extent attributes are being carried forward to an open year.

- 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.

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