Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision (benefit) for income taxes are as follows:
Year Ended December 31,
2022 2021 2020
(dollars in thousands)
Current:
Federal $ 22,350  $ 11,507  $ 833 
State 9,350  5,314  1,104 
Current tax provision 31,700  16,821  1,937 
 
Deferred:
Federal (4,681) (2,425) (3,602)
State (1,619) (401) (1,416)
Deferred tax benefit (6,300) (2,826) (5,018)
 
Total income tax provision (benefit), net $ 25,400  $ 13,995  $ (3,081)
The provision (benefit) for income taxes varies from the U.S. federal statutory rate. The following reconciliation shows the significant differences in the tax at statutory and effective rates:
Year Ended December 31,
2022 2021 2020
Federal income tax expense 21.0  % 21.0  % 21.0  %
State income tax expense, net of federal tax effect 6.4  5.6  5.7 
162(m) limitation 1.0  (1.3) — 
PPP loan —  1.8  — 
Fair market value of warrant 1.5  (0.7) — 
Noncontrolling interest (0.5) —  — 
Energy efficient home credits (3.6) (6.2) 5.6 
Other permanent differences —  0.1  (0.3)
Return to provision adjustment (0.7) 0.4  (3.5)
Rate change (0.1) 0.1  (3.2)
Change of valuation allowance (0.1) 0.2  — 
Other 0.2  —  — 
Effective tax rate 25.1  % 21.0  % 25.3  %
The difference between the statutory tax rate and the effective tax rate for the year ended December 31, 2022 is primarily related to state income taxes, net of federal income tax benefits, limitations related to officers’ compensation under Section 162(m), and the fair value of adjustment of warrants, offset by the energy efficient home credits. The difference between the statutory tax rate and the effective tax rate for the year ended December 31, 2021 is primarily related to state income taxes, net of federal income tax benefits, offset by the energy efficient home credits. The energy efficient home credits are a decrease to income tax expense in 2022 and 2021 compared to an increase to the Company’s income tax benefit in 2020. The difference between the statutory tax rate and the effective tax rate for the year ended December 31, 2020 is primarily related to state income taxes net of federal income tax benefits, limitations related to section 162(m), the forgiveness of the PPP loan, and the energy efficient home credits.
At December 31, 2022, 2021 and 2020, the Company did not have any gross uncertain tax positions or unrecognized tax benefits, and did not require an accrual for interest or penalties. The Company files income tax returns in the U.S. federal jurisdiction and in the states of Arizona, California, Florida, Massachusetts, New Jersey, New York, Pennsylvania, and Texas.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of
significant temporary differences that give rise to the deferred tax assets, net of deferred tax liabilities, are as follows:
December 31,
2022 2021
(dollars in thousands)
Deferred tax assets
Accrued expenses $ 14,279  $ 3,764 
Lease liability 4,384  3,479 
State tax liability 1,963  1,118 
Net operating loss and credit carryforward —  87 
Stock compensation 1,009  905 
UNICAP 4,489  1,677 
Goodwill and intangibles 331  606 
Basis difference in investments 499  108 
Deferred tax asset 26,954  11,744 
Less: Valuation allowance —  (128)
Deferred tax asset, net 26,954  11,616 
 
Deferred tax liabilities
Right-of-use asset (4,160) (3,321)
Basis difference in fixed assets and intangible assets (1,990) (1,025)
Warranty receivables (7,235) — 
Deferred tax liability (13,385) (4,346)
 
Net deferred tax asset $ 13,569  $ 7,270 
Based on the Company’s policy on deferred tax valuation allowances as discussed in Note 2 – Summary of Significant Accounting Policies and its analysis of positive and negative evidence, management believed that there was enough evidence, including cumulative income over the past three years, for the Company to conclude that it was more likely than not that it would realize all of its deferred tax assets as of December 31, 2022.
At December 31, 2022, the Company did not have any federal or state NOL carryforwards.
The statute of limitations is three years for federal income tax purposes and four years for state income tax purposes. The Company’s federal tax returns for years 2019 through 2021 and state tax returns for years 2018 through 2021 are subject to examination under statute.
The Inflation Reduction Act (“IRA”) of 2022 was enacted into law on August 16, 2022. The IRA introduces a 15% corporate alternative minimum tax on average annual adjusted financial statement income for applicable corporations, and a 1% excise tax on stock repurchases made by publicly traded US corporations after December 31, 2022. The IRA also retroactively extends the federal tax credit for building new energy efficient homes for homes delivered from January 1, 2022 through December 31, 2032. The federal energy tax credits were recognized for the year ended December 31, 2022. There were no other material effects of the IRA on the Company’s consolidated financial statements.
Prior to 2021, the Company historically reported income taxes on the consolidated income tax returns of Landsea Holdings since it was a wholly owned subsidiary of Landsea Holdings. Subsequent to the Merger, the Company now files standalone income tax returns. The income tax provision and related balances in these consolidated financial statements have been calculated as if the Company filed a separate tax return for all periods, including 2020. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the Company’s actual tax balances during that period.