INCOME TAXES
The Tax Act was enacted on December 22, 2017. Effective January 1, 2018 the Tax Act reduces the corporate rate from 35.0% to 21.0%. As of December 31, 2017, the Company has not completed its accounting for the tax effects of the enactment of the Act; however, the Company has made a reasonable estimate of the effects on its existing deferred tax balances. The Company recognized an income tax expense of $3,915 in the year ended December 31, 2017 to reflect the revaluation of the Company's net deferred tax assets based on the U.S. federal tax rate of 21.0%.
The Company is currently analyzing the Tax Act and refining its calculations, which could potentially impact the measurement of the Company's tax balances. The expected impact of the enactment of the Tax Act for fiscal year 2017 is reflected in the table below.
The provision for income taxes on continuing operations for the years ended December 31, 2017, 2016 and 2015 is summarized as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | 15,141 |
| | $ | 30,043 |
| | $ | 28,149 |
|
State | 2,975 |
| | 5,183 |
| | 5,761 |
|
| 18,116 |
| | 35,226 |
| | 33,910 |
|
Deferred: | | | | | |
Federal | 5,428 |
| | (1,034 | ) | | 2,026 |
|
State | 986 |
| | (1,217 | ) | | (754 | ) |
| 6,414 |
| | (2,251 | ) | | 1,272 |
|
Adjustment to deferred taxes for tax rate change | 3,915 |
| | — |
| | — |
|
Total | $ | 28,445 |
| | $ | 32,975 |
| | $ | 35,182 |
|
A reconciliation of the federal statutory rate to the effective tax rate for income from continuing operations for the years ended December 31, 2017, 2016 and 2015, respectively, is comprised as follows:
|
| | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 |
Income tax expense at statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income taxes - net of federal benefit | 3.1 |
| | 3.0 |
| | 3.6 |
|
Non-deductible expenses | 1.7 |
| | 0.9 |
| | 0.6 |
|
Equity compensation | (4.5 | ) | | — |
| | — |
|
Revaluation of deferred | 5.7 |
| | — |
| | — |
|
Other adjustments | 0.1 |
| | (0.5 | ) | | (0.6 | ) |
Total income tax provision | 41.1 | % | | 38.4 | % | | 38.6 | % |
The Company's deferred tax assets and liabilities as of December 31, 2017 and 2016 are summarized below. The deferred taxes in 2017 reflect the federal tax rate of 21.0%, whereas 2016 reflect a federal tax rate of 35.0%.
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Deferred tax assets (liabilities): | | | |
Accrued expenses | $ | 16,500 |
| | $ | 21,732 |
|
Allowance for doubtful accounts | 11,090 |
| | 15,956 |
|
Tax credits | 3,334 |
| | 3,461 |
|
Insurance | 5,135 |
| | 7,333 |
|
| 36,059 |
| | 48,482 |
|
Valuation allowance | (530 | ) | | — |
|
Total deferred tax assets | 35,529 |
| | 48,482 |
|
State taxes | (911 | ) | | (1,023 | ) |
Depreciation and amortization | (18,248 | ) | | (20,643 | ) |
Prepaid expenses | (3,625 | ) | | (3,743 | ) |
Total deferred tax liabilities | (22,784 | ) | | (25,409 | ) |
Net deferred tax assets | $ | 12,745 |
| | $ | 23,073 |
|
The Company has recorded a decrease related to deferred tax assets and deferred tax liabilities of $17,995 and $14,080, respectively, with a net adjustment to deferred income tax expense of $3,915 for the year ended December 31, 2017 as a result of the Tax Act.
The Company had state credit carryforwards as of December 31, 2017 and 2016 of $3,302 and $3,430, respectively. These carryforwards almost entirely relate to state limitations on the application of Enterprise Zone employment-related tax credits. Unless the Company uses the Enterprise Zone credits before hand, the carryforward will begin to expire in 2023. The remainder of these carryforwards relates to credits against the Texas margin tax and is expected to carry forward until 2027. As of December 31, 2017 a valuation allowance of $530 was recorded against the Enterprise Zone credits as the Company believes it is more likely than not that some of the benefit of the credits will not be realized.
The Company's operating loss carry forwards for both federal and states were not material during the year ended December 31, 2017 and 2016.
The Federal statutes of limitations on the Company's 2011, 2012, and 2013 income tax years lapsed during the third quarter of 2015, 2016, and 2017, respectively. During the fourth quarter of each year, various state statutes of limitations also lapsed. The lapses for the years ended December 31, 2017, 2016, and 2015 had no impact on the Company's unrecognized tax benefits.
As of December 31, 2017, 2016 and 2015, the Company did not have any unrecognized tax benefits, net of their state benefits, that would affect the Company's effective tax rate. The Company classifies interest and/or penalties on income tax liabilities or refunds as additional income tax expense or income. Such amounts are not material.