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INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES [ABSTRACT]

INCOME TAXES

(10)INCOME TAXES

The sources of pre-tax operating income are as follows (in thousands):

​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2021			2020			2019
Domestic	​	$	108,160	​	$	129,620	​	$	39,864	​
Foreign	​		99,724	​		40,648	​		70,547	​
Total	​	$	207,884	​	$	170,268	​	$	110,411	​

​

The Company’s selection of an accounting policy with respect to both the GILTI and BEAT rules is to compute the related taxes in the period the entity becomes subject to either. A reasonable estimate of the effects of these provisions has been included in the 2021 annual financial statements.

No significant changes in indefinite reinvestment assertion were made during the year. The Company has completed its analysis in regard to the full tax impact related to prior changes in indefinite reinvestment reassertion and any related taxes have been recorded. The Company generally intends to limit distributions from non-U.S. subsidiaries to cash balances available in foreign jurisdictions.

No additional income taxes have been provided for any remaining outside basis difference inherent in the Company’s foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations. The Company has an estimated $264 million of outside basis differences as of December 31, 2021. Determination of any unrecognized deferred tax liability related to the outside basis difference in investments in foreign subsidiaries is not practicable due to the inherent complexity of the multi-national tax environment in which the Company operates.

The components of the Company’s Provision for (benefit from) income taxes are as follows (in thousands):

​

​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2021			2020			2019
Current provision for (benefit from)	​	​	​	​	​	​	​	​	​	​
Federal	​	$	20,697	​	$	22,763	​	$	5,289	​
State	​		8,006	​		9,871	​		2,826	​
Foreign	​		20,161	​		13,496	​		18,938	​
Total current provision for (benefit from)	​		48,864	​		46,130	​		27,053	​
Deferred provision for (benefit from)	​	​	​	​	​	​	​	​	​	​
Federal	​		(7,017)	​		(2,390)	​		2,515	​
State	​		(402)	​		(254)	​		118	​
Foreign	​		8,250	​		(2,549)	​		(4,009)	​
Total deferred provision for (benefit from)	​		831	​		(5,193)	​		(1,376)	​
Total provision for (benefit from) income taxes	​	$	49,695	​	$	40,937	​	$	25,677	​

​

The following reconciles the Company’s effective tax rate to the federal statutory rate (in thousands):

​

​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2021			2020			2019
Income tax per U.S. federal statutory rate (21%, 21%, 21%)	​	$	43,655	​	$	35,756	​	$	23,186	​
State income taxes, net of federal deduction	​		4,588	​		6,923	​		3,144	​
Change in valuation allowances	​		12,567	​		3,903	​		9,832	​
Foreign income taxes at different rates than the U.S.	​		(1,416)	​		(783)	​		(3,356)	​
Foreign withholding taxes	​		(93)	​		106	​		600	​
Losses in international markets without tax benefits	​		—	​		(1,656)	​		(2,651)	​
Nondeductible compensation under Section 162(m)	​		1,494	​		656	​		668	​
Taxes related to equity compensation	​	​	(4,282)	​	​	(587)	​	​	(976)	​
Liabilities for uncertain tax positions	​		(790)	​		2,882	​		661	​
Permanent difference related to foreign exchange gains	​		3,362	​		(71)	​		36	​
(Income) losses of foreign branch operations	​		(187)	​		(10)	​		55	​
Non-taxable earnings of noncontrolling interest	​		(3,085)	​		(1,964)	​		(1,294)	​
Foreign dividend less foreign tax credits	​		(1,142)	​		(1,723)	​		(1,681)	​
Decrease (increase) to deferred tax asset - change in tax rate	​		—	​		(48)	​		(2,848)	​
State and Federal income tax credits and NOL's	​		(4,531)	​		(3,918)	​		(1,176)	​
Foreign earnings taxed currently in U.S.	​		1,930	​		1,936	​		2,172	​
Taxes related to prior year filings	​	​	(1,192)	​	​	(1,718)	​	​	(1,643)	​
Taxes related to acquisition accounting	​	​	—	​	​	1,317	​	​	978	​
Other	​		(1,183)	​		(64)	​		(30)	​
Income tax per effective tax rate	​	$	49,695	​	$	40,937	​	$	25,677	​
​	​	​	​	​	​	​	​	​	​	​
Effective tax rate percentage	​	​	23.9%	​	​	24.0%	​	​	23.3%	​

​

The Company’s deferred income tax assets and liabilities are summarized as follows (in thousands):

​

​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2021			2020
Deferred tax assets, gross	​	​	​	​	​	​	​
Accrued workers compensation, deferred compensation and employee benefits	​	$	8,441	​	$	8,574	​
Allowance for credit losses, insurance and other accruals	​		4,767	​		4,463	​
Amortization of deferred lease liabilities	​		15,816	​		20,352	​
Net operating losses	​		18,006	​		20,508	​
Equity compensation	​		2,302	​		1,660	​
Customer acquisition and deferred revenue accruals	​		20,069	​		6,868	​
Federal and state tax credits, net	​		2,759	​		2,383	​
Unrealized losses on derivatives	​		22	​		1,187	​
Impairment of equity investment	​	​	4,064	​	​	4,064	​
Partnership Investment	​	​	106	​	​	526	​
Other	​		5,052	​		5,444	​
Total deferred tax assets, gross	​		81,404	​		76,029	​
Valuation allowances	​		(29,620)	​		(18,697)	​
Total deferred tax assets, net	​		51,784	​		57,332	​
Deferred tax liabilities	​	​	​	​	​	​	​
Depreciation and amortization	​		(10,291)	​		(10,734)	​
Unrealized gain on derivatives	​	​	—	​	​	(2,959)	​
Contract acquisition costs	​		(1,831)	​		(3,182)	​
Intangible assets	​		(21,202)	​		(15,880)	​
Operating lease assets	​		(12,481)	​		(16,763)	​
Other	​		(184)	​		(480)	​
Total deferred tax liabilities	​		(45,989)	​		(49,998)	​
Net deferred tax assets	​	$	5,795	​	$	7,334	​

​

Quarterly, the Company assesses the likelihood by jurisdiction that its net deferred tax assets will be recovered. Based on the weight of all available evidence, both positive and negative, the Company records a valuation allowance against deferred tax assets when it is more-likely-than-not that a future tax benefit will not be realized.

As of December 31, 2021 the Company had approximately $6.9 million of net deferred tax assets in the U.S. and $1.2 million of net deferred tax liabilities across their foreign operations. As of December 31, 2021 the deferred tax valuation allowance was $29.6 million and related primarily to tax losses in foreign jurisdictions which do not meet the “more-likely-than-not” standard under current accounting guidance.

When there is a change in judgment concerning the recovery of deferred tax assets in future periods, a valuation allowance is recorded into earnings during the quarter in which the change in judgment occurred. In 2021, the Company made adjustments to its deferred tax assets and corresponding valuation allowances. The net change to the valuation allowance consisted of the following: a $4.0 million increase related to capital loss carry forwards not expected to be utilized in the United States; a $10.6 million increase in valuation allowance in Mexico, Netherlands, Canada and various other jurisdictions for deferred tax assets that do not meet the “more-likely-than-not” standard; and a $3.7 million release of valuation allowance in Canada, Turkey, the United Kingdom, and various other jurisdictions related to the utilization or write-off of deferred tax assets.

Activity in the Company’s valuation allowance accounts consists of the following (in thousands):

​

​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2021			2020			2019
Beginning balance	​	$	18,697	​	$	17,051	​	$	10,867	​
Additions of deferred income tax expense	​		14,660	​		4,650	​		7,373	​
Reductions of deferred income tax expense	​		(3,737)	​		(3,004)	​		(1,189)	​
Ending balance	​	$	29,620	​	$	18,697	​	$	17,051	​

​

As of December 31, 2021, after consideration of all tax loss carry back opportunities, the Company had tax affected tax loss carry forwards worldwide expiring as follows (in thousands):

​

​	​	​	​
2022		$	—
2023	​		94
2024	​		125
2025	​		50
After 2025	​		8,411
No expiration	​		9,326
Total	​	$	18,006

​

The Company has been granted “Tax Holidays” as an incentive to attract foreign investment by the governments of the Philippines and Costa Rica. Generally, a Tax Holiday is an agreement between the Company and a foreign government under which the Company receives certain tax benefits in that country, such as exemption from taxation on profits derived from export-related activities. In the Philippines, the Company has been granted multiple agreements, with an initial period of tax at 0% for four years, which will be fully expired in 2022 and additional periods at a reduced tax rate, expiring at various times beginning in 2030. The aggregate benefit to income tax expense for the years ended December 31, 2021, 2020 and 2019 was approximately $6.3 million, $4.4 million and $8.4 million, respectively, which had a favorable impact on diluted net income per share of $0.13, $0.09 and $0.18, respectively.

Accounting for Uncertainty in Income Taxes

In accordance with ASC 740, the Company has recorded a reserve for uncertain tax positions. The total amount of interest and penalties recognized in the accompanying Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income (Loss) as of December 31, 2021, 2020 and 2019 was approximately $2.8 million, $3.0 million and $2.1 million, respectively.

The Company had a reserve for uncertain tax benefits, on a net basis, of $6.9 million and $7.5 million for the years ended December 31, 2021 and 2020, respectively.

The tabular reconciliation of the reserve for uncertain tax benefits on a gross basis without interest for the three years ended December 31, 2021 is presented below (in thousands):

​

​	​	​	​
Balance as of December 31, 2018		$	4,784
Additions for current year tax positions	​		—
Reductions in prior year tax positions	​		—
Balance as of December 31, 2019	​		4,784
Additions for current year tax positions	​		2,725
Reductions in prior year tax positions	​		—
Balance as of December 31, 2020	​		7,509
Additions for current year tax positions	​		220
Reductions in prior year tax positions	​		(826)
Balance as of December 31, 2021	​	$	6,903

​

At December 31, 2021, the amount of uncertain tax benefits including interest, that, if recognized, would reduce tax expense was $9.8 million. Within the next 12 months, it is expected that the amount of unrecognized tax benefits may be reduced by $1.9 million as a result of the expiration of various statutes of limitation or other confirmations of tax positions.

The Company and its domestic and foreign subsidiaries (including Percepta LLC and its domestic and foreign subsidiaries) file income tax returns as required in the U.S. federal jurisdiction and various state and foreign jurisdictions. The following table presents the major tax jurisdictions and tax years that are open as of December 31, 2021 and subject to examination by the respective tax authorities:

​

​	​	​
Tax Jurisdiction		Tax Year Ended
United States		2017 to Present
Australia		2017 to Present
India		2017 to Present
Canada		2017 to Present
Mexico		2016 to Present
Philippines		2018 to Present

​

The Company’s U.S. income tax returns filed for the tax years ending December 31, 2017 to present, remain open tax years. The Company has been notified of the intent to audit, or is currently under audit of, income taxes for the United States for tax year 2017 and 2018, the Philippines for tax years 2017 and 2018, the state of California in the United States for tax years 2017 and 2018, and India for tax years 2017 through 2019. During 2020, the Company confirmed the closure of the Florida audit for tax years 2017 through 2019 with no material changes to the financial statements. Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company’s Consolidated Financial Statements.

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- 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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