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 income tax provision charged to operations for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):
Years Ended December 31,
  2022 2021 2020
Current:
U.S. Federal $ 117,395  $ 90,920  $ 44,395 
State and local 3,835  2,345  1,607 
Current income tax expense 121,230  93,265  46,002 
Deferred (benefit) expense 1,263  (228) (2,389)
Total income tax expense $ 122,493  $ 93,037  $ 43,613 
 
Although TPL was a trust until January 11, 2021, it has historically been taxed as if it were a corporation for income tax purposes prior to its conversion to a corporation. Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 21% for the years ended December 31, 2022, 2021 and 2020 to income before Federal income taxes as a result of the following (in thousands):
Years Ended December 31,
  2022 2021 2020
Computed tax expense at the statutory rate of 21% $ 119,460  $ 76,234  $ 46,129 
Reduction in income taxes resulting from:
Statutory depletion (823) (584) (4,577)
State taxes 3,045  1,740  1,234 
Executive compensation 1,146  1,687  789 
Prior year tax adjustments (13) 18  7 
Correction of historical tax depletion 805  12,975  — 
Estimated penalties and interest (763) 1,022  — 
Other, net (364) (55) 31 
Total income tax expense $ 122,493  $ 93,037  $ 43,613 
Effective tax rate 21.5  % 25.6  % 19.9  %

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2022 and 2021 are as follows (in thousands):
  December 31, 2022 December 31, 2021
Unearned revenue $ 5,621  $ 5,050 
Pension plan liability —  128 
Stock compensation 1,256  — 
Other 48  25 
Total deferred tax assets 6,925  5,203 
Property, plant and equipment 16,958  16,037 
Real estate and royalty interests 30,387  28,114 
Pension plan asset 731  — 
Total deferred tax liabilities 48,076  44,151 
Deferred taxes payable $ (41,151) $ (38,948)
TPL is subject to taxation in the United States and Texas. TPL is no longer subject to U.S. Federal income tax examination by tax authorities for tax years before 2019. During the quarter ended December 31, 2021, TPL identified an error in income taxes payable and current income tax expense as a result of incorrect tax treatment of depletion related to our oil and gas royalty interests in our filed income tax returns related to prior periods. TPL determined that current income tax expense, including penalties and interest, was understated by $4.6 million, $4.7 million and $3.7 million for the years ended December 31, 2020, 2019 and 2018, respectively, and income taxes payable was understated by $13.0 million and $8.4 million as of December 31, 2020 and 2019. TPL evaluated the effects of this out-of-period adjustment, both qualitatively and quantitatively, and concluded that this adjustment was not material to TPL's financial position or results of operations for the current or any prior periods. The related income tax returns were amended and the additional taxes were paid during the third quarter of 2022. In addition, $0.4 million of additional interest was accrued during 2022. The IRS has not assessed interest on the underpayment associated with these amended returns as of December 31, 2022. Accrued interest and penalties are included in income taxes payable in the consolidated balance sheets and were $1.1 million and $2.0 million as of December 31, 2022 and 2021, respectively.

The Inflation Reduction Act
On August 16, 2022, the Inflation Reduction Act (the “IRA”) was signed into law and includes a number of tax-related provisions, including (i) a 15-percent book minimum tax (“AMT”) on adjusted financial statement income once the three year average of adjusted financial statement income is greater than $1.0 billion, (ii) certain clean energy tax incentives in the form of tax credits, and (iii) a one-percent excise tax on certain corporate stock buybacks (effective beginning January 1, 2023). The Company does not anticipate that the IRA will have a significant impact on the Company’s financial position or results of operations.