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
NOTE 13. INCOME TAXES
We recognize deferred tax assets and liabilities for future tax consequences attributable to differences between our consolidated financial statement carrying amount of assets and liabilities and their respective tax bases. We measure these deferred tax assets and liabilities using enacted tax rates expected to apply in the years in which these temporary differences are expected to reverse. We recognize the effect on deferred tax assets and liabilities resulting from a change in tax rates in income in the period that includes the date of the change.
For financial reporting purposes, we recorded a valuation allowance of $40.0 million as of December 31, 2022, to offset $40.0 million of the deferred tax assets related to federal and state net operating loss carryforwards of $20.0 million and $15.7 million respectively, along with $4.3 million of other financial statement accruals for a total valuation allowance of $40.0 million. This balance represents an increase of $0.9 million during the year, from $39.1 million valuation allowance as of December 31, 2021.
 
The consolidated provision for income taxes is as follows:
 
 
  
Year Ended December 31,
 
 
  
2021
 
  
2022
 
 
  
(Dollars in thousands)
 
Current:
  
  
Federal
    $ —       
$
—  
 
State
      1,112     
 
(113
) 
    
 
 
     
 
 
  
       1,112     
 
(113
) 
Deferred:
                  
Federal
      (1,277 )    
 
(1,551
)
 
State
      (594 )    
 
1,272
 
    
 
 
     
 
 
  
       (1,871 )    
 
(279
)
 
    
 
 
     
 
 
  
Benefit from income taxes
      $ (759)       
$ (392)
  
    
 
 
     
 
 
  
Consolidated deferred tax assets and liabilities consist of the following:
 
 
  
As of December 31,
 
 
  
2021
 
  
2022
 
 
  
(Dollars in thousands)
 
Deferred tax assets:
  
  
Financial statement accruals not currently deductible
   $ 2,738     
$
1,977
 
Allowance for bad debt reserve
      3,399     
 
2,075
 
Net operating loss, AMT credit and other carryforwards
      35,290     
 
35,846
 
State taxes
      216     
 
60
 
Operating lease liabilities
      13,596     
 
13,224
 
Other
      3,965     
 
5,869
 
    
 
 
     
 
 
  
Total deferred tax assets
      59,204     
 
59,051
 
Valuation allowance for deferred tax assets
      (39,135 )    
 
(39,950
)
 
    
 
 
     
 
 
  
Net deferred tax assets
    $ 20,069     
$
19,101
 
    
 
 
     
 
 
  
     
Deferred tax liabilities:
                  
Excess of net book value of property and equipment and software for financial reporting purposes over tax basis
    $ 145      $
13
 
Excess of net book value of intangible assets for financial reporting purposes over tax basis
      75,747     
 
74,524
 
Operating lease
right-of-use
assets
      11,189     
 
11,296
 
    
 
 
     
 
 
  
Total deferred tax liabilities
      87,081     
 
85,833
 
    
 
 
     
 
 
  
Net deferred tax liabilities
    $ (67,012 )    
$
(66,732
)
 
    
 
 
     
 
 
  
The following table reconciles the above net deferred tax liabilities to the financial statements:
 
 
  
As of December 31,
 
 
  
2021
 
  
2022
 
 
  
(Dollars in thousands)
 
Deferred income tax asset per balance sheet
  
$
—  
 
  
$
—  
 
Deferred income tax liability per balance sheet
      (67,012 )    
 
(66,732
)
 
    
 
 
     
 
 
  
     $ (67,012 )    
$
(66,732
)
 
    
 
 
     
 
 
  
 
A reconciliation of the statutory federal income tax rate to the benefit from income tax is as follows:
 
 
  
Year Ended December 31,
 
 
  
2021
 
  
2022
 
 
  
(Dollars in thousands)
 
Statutory federal income tax (statutory tax rate)
    $ 8,559     
$
(762
) 
Effect of state taxes, net of federal
      643     
 
892
 
Permanent items
      172     
 
217
 
PPP loan forgiveness
      (2,351 )    
 
—  
 
State rate change
      531     
 
(1,064
) 
Valuation allowance
      (8,903 )    
 
(626
 )
 
Stock based compensation cancellation
      181     
 
38
 
Other, net
      409     
 
913
 
    
 
 
     
 
 
  
Benefit from income taxes
    $ (759 )    
$
(392
 )
 
    
 
 
     
 
 
  
At December 31, 2022, we had net operating loss carryforwards for federal income tax purposes of approximately $95.1 million that expire in years 2024 through 2037 and for state income tax purposes of approximately $633.9 million that expire in years 2023 through 2042. As a result of our adjusted cumulative three-year
pre-tax
book loss as of December 31, 2020, we performed an assessment of positive and negative evidence with respect to the realization of our net deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carryforwards and estimates of projected future taxable income. The economic uncertainty from the
COVID-19
pandemic provided additional negative evidence that outweighed positive evidence which resulted in recognition of a $39.1 million valuation allowance for the year ended December 31, 2020, related to the federal and state net operating loss carry forwards. During 2022, through operational activity of the company and
non-recurring
items such as land sales, we utilized and generated net operating loss carryforwards and adjusted the related valuation allowance by $0.9 million bringing the total valuation allowance to $40.0 million for the year ended December 31, 2022.
The amortization of our indefinite-lived intangible assets for tax purposes, but not for book purposes, creates deferred tax liabilities. A reversal of deferred tax liabilities may occur when indefinite-lived intangibles: (1) become impaired; or (2) are sold, which would typically only occur in connection with the sale of the assets of a station or groups of stations or the entire company in a taxable transaction. Due to the amortization for tax purposes and not for book purposes of our indefinite-lived intangible assets, we expect to continue to generate deferred tax liabilities in future periods exclusive of any impairment losses in future periods. These deferred tax liabilities and net operating loss carryforwards result in differences between our provision for income tax and cash paid for taxes.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into U.S. law. The IRA includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, among other provisions. We determined that the IRA did not have a material impact to our consolidated financial statements when considering our
year-end
tax provision. .
A provision of the Tax Cuts and Jobs Act (“TCJA”) took effect on January 1, 2022, that amended Section 174 to require capitalization and amortization of research and experimental (“R&E”) expenditures and software development costs. The capitalized R&E and software development costs associated with research conducted in the United States is amortized ratably over a
5-year
period
(15
-year
period for research conducted outside of the United States), beginning with the midpoint of the taxable year in which such expenditures are paid or incurred. We determined that the TCJA did not have a material impact to our consolidated financial statements when considering our
year-end
tax provision.