Douglas Dynamics, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

12. Income Taxes

The provision for income tax expense (benefit) consists of the following:



	Year ended December 31
	2021		2020		2019
Current:
Federal	$	4,246	$	5,509	$	12,492
State		(1,967)		1,621		3,067
		2,279		7,130		15,559
Deferred:
Federal		1,874		(17,135)		(1,442)
State		(256)		(2,271)		(666)
		1,618		(19,406)		(2,108)
	$	3,897	$	(12,276)	$	13,451

A reconciliation of income tax expense computed at the federal statutory rate to the provision for income taxes for the years ended December 31, 2021, 2020 and 2019 is as follows:



	2021		2020		2019
Federal income tax expense at statutory rate	$	7,264	$	(20,752)	$	13,150
State taxes, net of federal benefit		(1,329)		(2,820)		2,239
Valuation allowance		(101)		1,762		139
Change in uncertain tax positions, net		(705)		679		(601)
Research and development credit		(859)		(536)		(404)
State rate change		(652)		157		(426)
Goodwill impairment		-		10,038		-
Other		279		(804)		(646)
	$	3,897	$	(12,276)	$	13,451

Significant components of the Company’s deferred tax liabilities and assets are as follows:



	December 31,
	2021		2020
Deferred tax assets:
Allowance for doubtful accounts	$	756	$	754
Inventory reserves		1,505		1,529
Warranty liability		1,551		1,465
Deferred compensation		1,659		1,437
Earnout liabilities		297		354
Pension and retiree health benefit obligations		1,573		1,738
Interest rate swap		1,615		3,373
Accrued vacation		1,440		1,241
Medical claims reserve		48		84
Operating lease liabilities		5,011		5,583
Net operating losses		3,182		3,744
Other accrued liabilities		5,106		4,949
Other		663		-
Valuation allowance		(3,273)		(3,374)
Total deferred tax assets		21,133		22,877
Deferred tax liabilities:
Tax deductible goodwill and other intangibles		(35,609)		(35,953)
Accelerated depreciation		(9,918)		(8,105)
Operating leases - right of use assets		(4,626)		(5,583)
Other		(769)		83
Total deferred tax liabilities		(50,922)		(49,558)
Net deferred tax liabilities	$	(29,789)	$	(26,681)

Deferred income tax balances reflect the effects of temporary differences between the carrying amount of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.

State operating loss carry forwards for tax purposes will result in future tax benefits of approximately $2,356. These loss carry-forwards began to expire in 2021. The Company evaluated the need to maintain a valuation allowance against certain deferred tax assets. Based on this evaluation, which included a review of recent profitability, future projections of profitability, and future deferred tax liabilities, the Company concluded that a valuation allowance of approximately $2,447 is necessary at December 31, 2021 for the state net operating loss carry-forwards which are likely to expire prior to the Company's ability to use the tax benefit. The Company also carries a valuation allowance for approximately $826 related to non-state net operating loss carry-forwards which are likely to expire prior to the Company’s ability to use the tax benefit.

A reconciliation of the beginning and ending liability for uncertain tax positions is as follows:



	2021		2020		2019
Balance at beginning of year	$	1,954	$	1,219	$	1,795
Increases for tax positions taken in the current year		311		238		131
Increases for tax positions taken in the prior years		0		846		15
Decreases due to settlements with taxing authorities		(991)		(83)		-
Decreases due to lapses in the statute of limitations		(60)		(266)		(722)
Balance at the end of year	$	1,214	$	1,954	$	1,219

The amount of the unrecognized tax benefits that would affect the effective tax rate, if recognized, was approximately $1,214 at December 31, 2021. The Company recognizes interest and penalties related to the unrecognized tax benefits in income tax expense. Approximately $466 and $586 of accrued interest and penalties is reported as an income tax liability at December 31, 2021 and 2020, respectively. The liability for unrecognized tax benefits is reported in Other Long-term Liabilities on the Consolidated Balance Sheets at December 31, 2021 and 2020.

The Company files income tax returns in the United States (federal) and various states. Tax years open to examination by tax authorities under the statute of limitations include 2018, 2019 and 2020 for Federal and 2017 through 2020 for most states. Tax returns for the 2021 tax year have not yet been filed.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
-Topic 740
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-Section S99
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Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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Reference 5: http://www.xbrl.org/2003/role/disclosureRef
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-URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
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+ Details