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INCOME TAXES
 12 Months Ended
Mar. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. Among other things, the IRA imposes a fifteen percent corporate alternative minimum tax (the “Corporate AMT”) for tax years beginning after December 31, 2022 and levies a one percent excise tax on net share repurchases after December 31, 2022. The excise tax on the share repurchase portion of the IRA did not have an impact on our results of operations or financial position for the year ended March 31, 2023 or March 31, 2024. We do not expect the Corporate AMT, excise tax or other provisions of the IRA to have a material impact on our consolidated financial statements.

Income before income taxes was comprised of the following (in thousands):
Year Ended March 31,
202420232022
U.S. Federal$127,647 $118,181 $87,607 
Foreign12,833 7,730 3,858 
Income before income taxes$140,480 $125,911 $91,465 
Income tax expense consists of the following (in thousands):
For the year ended:CurrentDeferredTotal
March 31, 2024
U.S. Federal$28,832 $(2,560)$26,272 
State and local8,057 (10)8,047 
Foreign3,444 178 3,622 
Provision for income taxes$40,333 $(2,392)$37,941 
March 31, 2023
U.S. Federal$27,920 $(3,549)$24,371 
State and local6,135 (2,471)3,664 
Foreign1,482 (180)1,302 
Provision for income taxes$35,537 $(6,200)$29,337 
March 31, 2022
U.S. Federal$20,139 $(1,578)$18,561 
State and local5,271 761 6,032 
Foreign638 (1,085)(447)
Provision for income taxes$26,048 $(1,902)$24,146 


Income tax expense differed from the amounts computed by applying the U.S. federal statutory income tax rate of 21.0% to income before income taxes as a result of the following (in thousands):

Year Ended March 31,
202420232022
Computed tax expense at statutory rate$29,501 $26,441 $19,206 
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefits6,358 2,895 4,765 
Tax indemnification asset release1,789 — — 
Nondeductible executive compensation1,196 1,555 992 
Repatriation tax, net of tax credit491 904 170 
Uncertain tax positions278 (224)759 
Other permanent differences215 557 (143)
Global intangible low-taxed income ("GILTI") inclusion207 1,123 580 
IRC section 250 deductions(1,050)(1,626)(1,102)
Vesting of stock-based compensation(417)(408)(1,916)
Foreign tax credits(207)(604)(450)
Valuation allowance(132)(96)379 
Effect of rates different than statutory(120)(114)91 
Other, net(168)(1,066)815 
Provision for income taxes$37,941 $29,337 $24,146 
The effective tax rates for the years ended March 31, 2024, 2023 and 2022 were 27.0%, 23.3% and 26.4%, respectively. As compared with the statutory rate for the year ended March 31, 2024, the provision for income taxes was primarily impacted by state tax expense (net of federal benefits), which increased the provision by $6.4 million and effective rate by 4.5%; impact of the tax indemnification asset release, which increased the provision by $1.8 million and the effective tax rate by 1.3%; executive compensation limitation, which increased the provision by $1.2 million and the effective tax rate by 0.9%; impact of repatriation of foreign earnings, which increased the provision by $0.5 million and the effective rate by 0.3%. This was partially offset by IRC section 250 deductions, which decreased the provision by $1.1 million and the effective tax rate by 0.7%.

As compared with the statutory rate for the year ended March 31, 2023, the provision for income taxes was primarily impacted by the state tax expense, which increased the provision by $2.9 million and the effective rate by 2.3%, executive compensation limitation, which increased the provision by $1.6 million and the effective rate by 1.2%; impact of GILTI inclusions, which increased the provision by $1.1 million and the effective tax rate by 0.9%; impact of repatriation of foreign earnings, which increased the provision by $0.9 million and the effective rate by 0.7% and the additional non-deductible expenses. which increased the provision by $0.6 million and the effective rate by 0.4%. This was offset by IRC section 250 deductions, which decreased the provision by $1.6 million and the effective tax rate by 1.3%; foreign tax credits, which decreased the provision by $0.6 million and the effective tax rate by 0.5%.


The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2024 and 2023 are presented below (in thousands):

March 31,
20242023
Deferred tax assets:
Operating lease liabilities$11,852 $15,684 
Accrued compensation6,777 6,636 
Inventory reserves3,877 3,422 
Capitalized R&D1,446 968 
Transaction Costs1,141 828 
Accrued expenses773 1,580 
Pension and other employee benefits384 452 
Foreign tax credit carry-forward292 284 
Net operating loss carryforwards— 144 
Other, net641 747 
Deferred tax assets27,183 30,745 
Valuation allowance(216)(428)
Deferred tax assets, net of valuation allowance26,967 30,317 
Deferred tax liabilities:
Goodwill and intangible assets(64,534)(66,432)
Operating lease right-of-use assets(10,609)(14,337)
Property, plant and equipment(7,725)(7,299)
Repatriation reserve(1,911)(1,784)
Other, net(1,796)(2,148)
Deferred tax liabilities(86,575)(92,000)
Net deferred tax liabilities$(59,608)$(61,683)

As of March 31, 2024, we had immaterial valuation allowance related to foreign tax credits. During the year ended March 31, 2024, we utilized the remaining net operating loss carryforward and released the related valuation allowance. As of March 31, 2023, we had immaterial valuation allowance related to operating loss carryforward and foreign tax credits.
A provision was made for taxes that may become payable upon distribution of earnings from our foreign subsidiaries. Deferred income tax has not been recognized on any remaining basis difference that is permanently invested outside the United States.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) is as follows (in thousands):
March 31,
20242023
Balance at beginning of year$11,784 $9,934 
Increases related to prior year tax positions173 — 
Decreases related to prior year tax positions(31)— 
Decreases related to lapses of statute of limitations(1,049)(690)
Increases related to current year tax positions— 2,540 
Balance at end of year$10,877 $11,784 

During the year ended March 31, 2024, we released a reserve of $1.5 million including accrued interest of $0.2 million and accrued penalty of $0.2 million, as a result of the lapse of statute for the 2019 period. We also recorded additional uncertain tax positions reserve of $1.7 million, including accrued interest of $1.2 million and accrued penalty of $0.5 million on historical tax positions. We also recorded an additional $0.2 million reserve and a corresponding tax indemnification asset through purchase accounting in connection with the Falcon acquisition during the measurement period.

During the year ended March 31, 2023, we released a reserve of $1.6 million primarily as a result of the conclusion of TRUaire's Vietnam's audit for the tax periods from January 1, 2019 to March 31, 2022 (discussed below), including accrued interest of $0.4 million and accrued penalties of $0.5 million. We also recorded total tax reserves of $2.8 million, including accrued interest and penalty of $0.1 million and $0.2 million, respectively, through purchase accounting in connection with the Falcon Stainless acquisition. For the year ended March 31, 2023, we recorded an additional tax reserve of less than $0.1 million, accrued interest of $0.7 million and accrued penalty of $0.6 million.

In connection with the Falcon acquisition that closed in October 2022, the Company recognized a UTP of $3.0 million related to pre-acquisition tax periods. In addition, in accordance with the tax indemnification included in the Falcon acquisition agreement, the sellers provided a contractual indemnification to the Company for up to $4.5 million related to UTPs taken in pre-acquisition years, and we recognized an initial tax indemnification asset of $3.0 million through purchase accounting, which will increase as additional interest and penalties on UTPs are accrued. This tax indemnification asset will either be settled or expire upon the closure of the tax statutes for the pre-acquisition periods. During the three months ended December 31, 2023, as a result of the statute expiration of the 2019 federal tax return, $1.0 million UTP was released. The related $1.0 million tax indemnification asset expired concurrently and was recognized as non-cash other expense on the statement of income, which is not deductible for income tax purposes. As of March 31, 2024, the UTP reserve and offsetting indemnification asset related to Falcon's pre-acquisition period were $2.4 million. The Falcon UTP reserves and offsetting indemnification asset will either be settled or expire upon the closure of the tax statutes for the pre-acquisition period.

In connection with the TRUaire acquisition closed in December 2020, the Company recognized a UTP of $17.3 million related to pre-acquisition tax periods. In addition, in accordance with the tax indemnification included in the purchase agreement, the sellers provided a contractual indemnification to the Company for up to $12.5 million related to UTPs taken in pre-acquisition years, and we recognized a tax indemnification asset of $12.5 million. This tax indemnification asset expired in December 2023. During the three months ended March 31, 2021, as a result of the audit closure of a pre-acquisition tax period for TRUaire, $5.0 million of the tax indemnification asset was released along with the relevant UTP of $5.3 million. During the three months ended December 31, 2022, TRUaire's Vietnam entity concluded its audit for the tax periods from January 1, 2019 to March 31, 2022 and received an audit closing letter from the tax authority. As a result, $1.5 million of the UTP accrual (including penalties and interests accrued post-acquisition) was released and recorded as an income tax benefit for the three months ended December 31, 2022. During the three months ended December 31, 2023, the remaining $7.5 million tax indemnification asset expired and was recognized as non-cash other expense on the statement of income, which is not deductible for income tax purposes. As of March 31, 2024, the UTP accrual related to TRUaire's pre-acquisition tax periods was $14.3 million and is expected to be released in the future as the statutes on the open tax years expire.
The Company expects $3.3 million of existing reserves for UTPs to either be settled or expire within the next 12 months as the statutes of limitations expire. Our federal income tax returns remain subject to examination for the years ended March 31, 2023, 2022 and 2021. Our income tax returns for TRUaire's pre-acquisition periods including calendar years 2018, 2019 and 2020 remain subject to examinations. Our income tax returns in certain state income tax jurisdictions remain subject to examination for various periods for the period ended September 30, 2015 and subsequent years.