Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.23.1
Income Taxes
 3 Months Ended
Mar. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income tax expense (benefit) and effective tax rates were as follows:
Three Months Ended March 31,
2023 2022
(in thousands, except effective tax rate)
Income (loss) before income taxes $ (13,855) $ 12,382 
Income tax expense (benefit) (5,944) 818 
Effective tax rate 42.9  % 6.6  %
The Company recorded income tax benefit of $5.9 million and income tax expense of $0.8 million for the three months ended March 31, 2023, and 2022, respectively. The effective tax rate for the three months ended March 31, 2023 was 42.9% compared to 6.6% for the three months ended March 31, 2022. The effective tax rate for the three months ended March 31, 2023, differs from the federal statutory rate of 21% primarily due to state taxes and non-deductible stock-based compensation expense. The effective tax rate for the three months ended March 31, 2022 differs from the federal statutory rate of 21% primarily due to valuation allowances, state taxes, and U.S. tax on foreign operations.
Prior to September 2022, the Company’s net U.S. federal and state deferred tax assets were fully offset by a valuation allowance, excluding a portion of its deferred tax liabilities for tax deductible goodwill, primarily as a result of the Company’s lack of U.S. earnings history and cumulative loss position. The Company prepares a quarterly analysis of its deferred tax assets which considers positive and negative evidence, including its cumulative income (loss) position, revenue growth, continuing and improved profitability, and expectations regarding future profitability. Although the Company believes its estimates are reasonable, the ultimate determination of the appropriate amount of valuation allowance involves significant judgment.
The Company determined sufficient positive evidence existed to conclude that the U.S. deferred tax assets are more likely than not realizable. As a result, the Company released the valuation allowance attributed to the deferred tax assets associated with the Company’s operations in the U.S. during the third quarter of 2022. There is no change in assessment as of March 31, 2023.
On August 16, 2022, the "Inflation Reduction Act" (H.R. 5376) was signed into law in the United States. Among other things, the Act imposes a 15% corporate alternative minimum tax for tax years beginning after December 31, 2022, levies a 1% excise tax on net stock repurchases after December 31, 2022, and provides tax incentives to promote clean energy. The Company does not currently expect the Inflation Reduction Act to have a material impact on the condensed consolidated financial statements.