v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The income tax expense (benefit) consisted of the following:
(In thousands)Year Ended December 31, 2022Year Ended
 December 31,
2021		Year Ended
 December 31,
2020
Current tax expense
Federal$20,213 $17,430 $2,120 
State and local5,334 4,088 1,479 
Foreign 5,031 — — 
Total Current30,578 21,518 3,599 
Deferred tax expense (benefit)
Federal12,666 13,509 17,204 
State and local3,285 3,077 3,750 
Foreign560 2,409 (4,148)
Total Deferred16,511 18,995 16,806 
Income tax expense, net$47,089 $40,513 $20,405 
Income (loss) before income taxes consists of the following:
(In thousands)Year Ended December 31, 2022Year Ended
 December 31,
2021		Year Ended
 December 31,
2020
Earnings (losses) before income taxes
United States$156,357 $149,360 $144,075 
Foreign54,927 10,452 (15,373)
Income before income taxes$211,284 $159,812 $128,702 
For the years ended December 31, 2022, 2021, and 2020, the effective income tax rate differs from the federal statutory income tax rate as explained below:
Year Ended December 31, 2022Year Ended
 December 31,
2021		Year Ended
 December 31,
2020
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %
Change in fair value of warrant liabilities— (0.1)(6.5)
State and local income taxes, net of federal benefit4.2 5.6 2.8 
Insurance proceeds(2.9)— — 
Income attributable to non-controlling interest— — (0.6)
Foreign rate differential0.5 0.3 (0.6)
Change in state tax rate(1.1)(1.9)0.6 
Tax law change— — (0.8)
Other0.6 0.5 — 
Effective income tax rate22.3 %25.4 %15.9 %
Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the accompanying consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.
Details of the Company’s deferred tax assets and liabilities are summarized as follows:    
(In thousands)As of December 31, 2022As of
 December 31, 2021
Deferred tax assets
Imputed interest$6,248 $6,478 
Tax credits1,140 3,011 
Net operating loss carryforwards122 — 
Accrued liabilities 8,992 7,080 
Share-based compensation2,804 3,588 
Other5,236 5,367 
Total deferred tax assets24,542 25,524 
Deferred tax liabilities
Goodwill and intangible assets(304,121)(291,024)
Property and equipment(53,456)(51,272)
Other(13,995)(1,075)
Total deferred tax liabilities(371,572)(343,371)
Total deferred tax assets and liabilities $(347,030)$(317,847)
The recognition of deferred tax assets is based on management’s belief that it is more likely than not that the tax benefits associated with temporary differences, net operating loss carryforwards and tax credits will be utilized. The Company assesses the recoverability of the deferred tax assets on an ongoing basis. In making this assessment, the Company considers all positive and negative evidence, and all potential sources of taxable income including scheduled reversals of deferred tax liabilities, tax-planning strategies, projected future taxable income and recent financial performance.
At December 31, 2022 and 2021, Hostess had gross state credit carryforwards of $1.4 million and $3.8 million respectively. The carryforwards in 2022 relate entirely to Kansas High Performance Incentive Program credits and will begin to expire in 2032 if not utilized.
At December 31, 2022, Hostess had gross state net operating losses of $1.6 million. Unless utilized, the state net operating losses expire in 2034.
The global intangible low-taxed income (“GILTI”) provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company is electing to account for GILTI tax in the period in which it is incurred.
The Company recognizes in the consolidated financial statements the benefit of a tax position only if the impact is more likely than not of being sustained on audit based on the technical merits of the position. As of both December 31, 2022 and 2021, the Company had $1.6 million of gross unrecognized tax benefits, which would have a net $1.6 million impact on the effective tax rate, if recognized. The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
(In thousands)
Balance at December 31, 2020$1,560 
Additions for tax positions established in prior years45 
Balance at December 31, 20211,605 
Additions for tax positions acquired80 
Reductions for tax positions established in prior years(92)
Balance at December 31, 2022$1,593 
Interest and penalties related to income tax liabilities, if incurred, are included in income tax expense in the consolidated statements.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and certain subsidiaries in Canada. For federal and state tax purposes, the Company and its subsidiaries are generally subject to examination for three years after the income tax returns are filed. As such, U.S. federal and state income tax returns filed for periods since 2017 remain open for examination by tax authorities. In Canada, tax returns are subject to examination for four years after the notice of assessment is issued. Canadian tax returns filed for periods since 2016 remain open for examination.
As of December 31, 2022, the Company has approximately $45.9 million of undistributed foreign subsidiary earnings that are intended to be permanently reinvested outside of the United States. The Company does not provide deferred taxes on the undistributed earnings and does not expect withholding taxes or other foreign income taxes to apply should these earnings be distributed.