Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision for (benefit from) income taxes is comprised of:
Year Ended December 31,
2023 2022 2021
Current tax expense (benefit)
Federal
 $ (2,497) $ 7,709  $ (528)
State and local
 6,649  5,314  309 
Foreign
 (2) —  — 
Total current tax expense (benefit)
 4,150  13,023  (219)
Deferred tax expense (benefit)
Federal
 25,341  (5,008) (135,789)
State and local
 (11,491) (8,632) (8,252)
Foreign
 727  80  4,100 
Total deferred tax expense (benefit)
 14,577  (13,560) (139,941)
Non-current benefit
 —  (288) (184)
Provision for (benefit from) income taxes
 $ 18,727  $ (825) $ (140,344)
The amount of deferred tax expense (benefit) differs from the change in the year-end deferred tax balances due to the tax effect of other comprehensive income, additional paid-in capital items or change in foreign currency exchange rates.
On March 27, 2020, Congress enacted the CARES Act to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits for employee retention, deferment of the employer’s portion of social security tax payments, net operating loss carrybacks, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. An income tax benefit of $13.4 million was recognized as a result of the favorable federal tax rate differential from the net operating loss carrybacks under the CARES Act. The favorable federal tax rate differential is due to net operating losses generated in tax years with a federal tax rate of 21% whereas the losses were carried back to tax years with a federal tax rate of 35%.
The Inflation Reduction Act of 2022 (the “IRA”) was signed into law on August 16, 2022. The IRA includes numerous tax provisions, clean-energy related tax incentives and more funding for IRS enforcement and other initiatives. New corporate taxes, including a 15% corporate alternative minimum tax (“CAMT”) and a 1% excise tax on stock repurchases by certain publicly traded corporations, were introduced in the IRA. The 15% CAMT is applied on the adjusted financial statement income of applicable corporations and is effective for taxable years beginning after December 31, 2022. The new CAMT provision does not currently impact our consolidated financial statements, as it is not currently applicable to us and we do not expect it to be applicable to us in the foreseeable future. The 1% excise tax is imposed on repurchases of stock by certain publicly traded corporations beginning after December 31, 2022. The amount of repurchases subject to the excise tax is reduced by the value of new stock issued to the public or employees during the year.
The reconciliation between our effective tax rate on income before income taxes and the statutory tax rate is as follows:
Year Ended December 31,
2023 2022 2021
Income tax expense (benefit) at federal statutory rate
 $ 20,056  $ (610) $ (151,582)
State and local income taxes, net of federal tax benefit
 8,393  869  (20,575)
Section 162(m) limitation
 3,341  3,709  4,831 
Share-based compensation
 2,060  50  — 
CARES Act
 —  —  (1,283)
Loss on debt extinguishment
 —  —  8,609 
Change in valuation allowance
 (15,216) (4,833) 16,933 
Other, net
 93  (10) 2,723 
Provision for (benefit from) income taxes
 $ 18,727  $ (825) $ (140,344)
Deferred income taxes are the result of provisions of the tax laws that either require or permit certain items of income or expense to be reported for tax purposes in different periods than they are reported for financial reporting. The tax effect of temporary differences that gives rise to the net deferred tax liability are as follows:
December 31,
2023 2022
Deferred tax assets:
Lease-related liabilities
 $ 607,331  $ 573,543 
Accrued equity compensation
 76,422  80,198 
Accrued expenses
 18,522  11,974 
Deferred revenue
 1,608  1,538 
Net operating loss
 85,217  105,214 
Business interest
 57,793  35,253 
Other
 5,742  5,589 
Valuation allowance
 (9,592) (24,633)
Total deferred tax assets
 843,043  788,676 
Deferred tax liabilities:
Property and equipment
 (277,360) (236,334)
Intangibles
 (44,543) (42,764)
Operating and finance lease right-of-use assets
 (566,087) (539,797)
Partnership interest
 (1,654) (1,677)
Prepaid expenses
 (8,952) (9,147)
Costs related to deferred revenue
 (82) (227)
Other
 (431) (123)
Total deferred tax liabilities
 (899,109) (830,069)
Net deferred tax liability
 $ (56,066) $ (41,393)
We recognize a tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. We adjust our liability for unrecognized tax benefits in the period in which an uncertain tax position is effectively settled, that statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Unrecognized tax benefits were not significant in any of the periods presented.
We are subject to taxation in the U.S., Canada and various states. Our tax years 2023, 2022, 2021 and 2020 are subject to examination by the tax authorities. With few exceptions, we are no longer subject to U.S. federal, state or local examinations by tax authorities for years before 2020.
As of December 31, 2023, we had a federal income tax net operating loss carryforward related to our U.S. operations of approximately $329.1 million ($69.1 million tax effected), that can be carried forward indefinitely. As of December 31, 2023, we also had state net operating loss carryforwards totaling approximately $196.9 million ($11.0 million tax effected), of which approximately $147.6 million ($8.1 million tax effected) expires between 2027 and 2044 and approximately $49.3 million ($2.9 million tax effected) can be carried forward indefinitely. As it relates to our Canada operations, we had an income tax net operating loss carryforward of approximately $19.4 million ($5.1 million tax effected) as of December 31, 2023, which is subject to expiration between tax years 2036 and 2042.
As of December 31, 2022, we had a federal income tax net operating loss carryforward related to our U.S. operations of approximately $393.8 million ($82.7 million tax effected), that can be carried forward indefinitely. As of December 31, 2022, we also had state net operating loss carryforwards totaling approximately $295.6 million ($16.9 million tax effected), of which approximately $218.0 million ($12.5 million tax effected) was to expire between 2026 and 2043 and approximately $77.6 million ($4.4 million tax effected) could be carried forward indefinitely. As it relates to our Canada operations, we had an income tax net operating loss carryforward of approximately $21.3 million ($5.7 million tax effected) as of December 31, 2022, which was subject to expiration between tax years 2032 and 2042.
As of December 31, 2023, we had a business interest carryforward of approximately $229.6 million ($57.8 million tax effected) that can be carried forward indefinitely.
As of December 31, 2022, we had a business interest carryforward of approximately $143.4 million ($35.3 million tax effected) that can be carried forward indefinitely.
We considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations to determine the extent to which we believe net deferred tax assets will more likely than not be realized. Based on this assessment, as of December 31, 2023, a valuation allowance of $0.4 million has been recorded to reduce the deferred tax asset associated with the state net operating loss carryforwards and other deferred tax assets. As of December 31, 2023, a valuation allowance of approximately $8.1 million has been recorded to reduce the deferred tax asset associated with the Canadian net operating loss carryforward and other deferred tax assets. As of December 31, 2023, we had a foreign tax credit carryforward of approximately $1.1 million that can be used to offset future U.S. federal tax liabilities on foreign-sourced income. We project that our foreign sourced income will not be sufficient to fully utilize the credit carryforward. As a result, a valuation allowance of $1.1 million has been recorded as of December 31, 2023 to reduce the deferred tax asset associated with the foreign tax credit carryforward.
As of December 31, 2022, a valuation allowance of $15.4 million was recorded to reduce the deferred tax asset associated with the state net operating loss carryforwards and other deferred tax assets. As of December 31, 2022, a valuation allowance of approximately $8.1 million was recorded to reduce the deferred tax asset associated with the Canadian net operating loss carryforward and other deferred tax assets. As of December 31, 2022, we had a foreign tax credit carryforward of approximately $1.1 million that can be used to offset future U.S. federal tax liabilities on foreign-sourced income. We projected that our foreign sourced income will not be sufficient to fully utilize the credit carryforward. As a result, a valuation allowance of $1.1 million has been recorded as of December 31, 2022 to reduce the deferred tax asset associated with the foreign tax credit carryforward.
We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We have not recorded a deferred tax liability related to the U.S. federal and state income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries indefinitely invested outside the United States.