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
Income tax expense (benefit) reported in the consolidated income statements is comprised of the following:
December 31,
2022 2021
Current expense (benefit):
Federal $ —  $ — 
State, net of state tax credits 19,589  (46,031)
Total current expense (benefit) 19,589  (46,031)
Deferred expense (benefit):
Federal 610,210  (969,628)
State 136,711  (277,570)
Total deferred expense (benefit) 746,921  (1,247,198)
Total income tax expense (benefit) $ 766,510  $ (1,293,229)
The following are the components of the Company’s deferred tax assets (liabilities) for federal and state income taxes:
December 31,
2022 2021
Deferred income tax assets:
Accrued expenses $ 109,437  $ 938,916 
Deferred revenue 5,338,821  4,546,130 
Lease liability 6,582,122  5,839,233 
Goodwill - component 2 72,033  53,946 
Nonqualified stock options 339,076  255,921 
Net operating loss carryforwards 3,400,019  4,210,605 
Tax credits 35,850  35,850 
Intangibles 2,595,312  1,719,484 
Total deferred income tax assets 18,472,670  17,600,085 
Deferred income tax liabilities:
Lease right-of-use asset (5,694,797) (5,022,052)
Deferred franchise costs (100,558) (122,431)
Goodwill - component 1 (537,421) (405,964)
Asset basis difference related to property and equipment (2,545,455) (1,902,389)
Restricted stock compensation (145,956) (98,958)
Total deferred income tax liabilities (9,024,187) (7,551,794)
Valuation allowance (1,006,770) (859,657)
Net deferred tax asset $ 8,441,713  $ 9,188,634 

The Joint Corp., without its consolidated VIEs, has federal net operating loss carryforwards of $14.8 million and $17.1 million as of December 31, 2022 and 2021, respectively. $8.7 million of the federal net operating loss is subject to a 20-year carryforward, with a portion beginning to expire in 2036. $6.1 million of the federal net operating loss has an indefinite carryforward period.

The Joint Corp., without its consolidated VIEs, has various state net operating loss carryforwards. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. If such net operating loss carryforwards are not utilized, they will begin to expire in 2025.

The Joint Corp. has research and development credits of $14,229 that will begin to expire in 2031 and $21,621 California AMT credits that do not expire.

The VIEs have net operating loss carryforwards of $30.3 million and $29.4 million as of December 31, 2022 and 2021, respectively. $17.3 million of the federal net operating loss is subject to a 20-year carryforward, with a portion beginning to expire in 2036. $12.9 million of the federal net operating loss has an indefinite carryforward period. The VIEs have various state net operating loss carryforwards. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. If such net operating loss carryforwards are not utilized, they will begin to expire in 2036. These federal and state net operating loss carryforwards are reserved with a full valuation allowance because, based on the available evidence and due to the structures of the management service agreements, the Company believes it is more likely than not that the Company would not be able to utilize those deferred tax assets in the future. Since the VIEs are separate legal entities and do not file consolidated tax returns with The Joint Corp, the net operating losses from the VIEs cannot offset income from The Joint Corp or vice versa.
The following is a reconciliation of the statutory federal income tax rate applied to pre-tax accounting net income, compared to the income tax benefit in the consolidated income statements:
  For the Years Ended December 31,
  2022 2021
  Amount Percent Amount Percent
Expected federal tax expense (benefit) $ 408,190  21.0  % $ 1,109,334  21.0  %
State tax provision (benefit), net of federal benefit 160,187  8.2  % (382,181) (7.2) %
Change in valuation allowance 147,113  7.6  % 174,008  3.3  %
Other permanent differences 199,927  10.3  % 311,360  5.9  %
Stock compensation (91,454) (4.7) % (2,519,083) (47.7) %
Change in tax rate (85,536) (4.4) % —  —  %
Other adjustments 28,083  1.4  % 13,333  0.3  %
Expense (Benefit) $ 766,510  39.4  % $ (1,293,229) (24.4) %

Changes in the Company’s income tax expense (benefit) relate primarily to state taxes and stock-based compensation, as well as changes in pre-tax income during the year ended December 31, 2022, as compared to the year ended December 31, 2021. For the years ended December 31, 2022 and December 31, 2021, effective tax rates were 39.4% and (24.4)%, respectively. The difference between the statutory federal income tax rate and the Company’s effective tax rate was primarily due to state taxes, stock-based compensation, and other permanent differences.
For the years ended December 31, 2022 and December 31, 2021, the Company had no uncertain tax positions or interest and penalties related to uncertain tax positions. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses, if any.
With exceptions due to the generation and utilization of net operating losses or credits, as of December 31, 2022, the Company is no longer subject to federal and state examinations by taxing authorities for tax years before 2019 and 2018, respectively.