Note 8.Income Taxes

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017.  The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% and eliminated the 20-year limit on the carryforward of losses, and resulted in the Company remeasuring its existing deferred tax balances.  In addition, generally beginning in 2018, the Tax Act alters the deductibility of certain items (e.g., certain compensation, interest, entertainment expenses), and allows qualifying capital expenditures to be deducted fully in the year of purchase.  As of December 31, 2017, the Company has not fully completed its analysis of the tax effects of the Tax Act; however, it has made a reasonable estimate of the effects on its deferred tax balances.  The Company remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%.  The Company’s valuation allowance was remeasured based on the new provisions in the Tax Act including the elimination of the 20-year net operating loss carryforward, the 80% limitation on the usage of certain net operating losses going forward and the impact of these provisions on the Company’s indefinite-lived deferred tax assets and liabilities.  The Company will continue to analyze certain aspects of the Tax Act and refine the calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.  The provisional amount recorded related to the remeasurement of the deferred tax balance and valuation allowance was $8.1 million. The net effect of the Tax Act was a $3.1 million tax benefit. 

   

The components of Loss before income taxes were as follows:



The benefit for income taxes consisted of the following:

 



Excess tax benefits in the amount of $146 were recognized as a component of income tax expense during 2017 resulting from the exercise of stock options and the release of restricted shares.  Prior to the adoption of ASU 2016-09 in 2017, excess tax benefits were recognized as additional paid-in capital. 

 



 

The tax effects of temporary differences that result in significant portions of the deferred tax accounts based on a 21% and 35% federal rate in 2017 and 2016, respectively, are as follows:

 



For 2017 and 2016, the Company’s U.S. operations were in a cumulative loss position.  As such, the Company has recorded a valuation allowance on its net deferred tax assets.  The valuation allowance increased by $3,826 and $14,859 for the years ended December 31, 2017 and 2016, respectively.  In future periods, the allowance could be reduced if sufficient evidence exists indicating that it is more likely than not that a portion or all of these deferred tax assets will be realized.

In both 2017 and 2016, the Company’s Canadian operations were in a cumulative loss position.  As such, the Company has recorded a full valuation allowance on the net deferred tax assets in Canada.  The valuation allowance increased by $110 and $348 for the years ended December 31, 2017 and 2016, respectively.  In future periods, the allowance could be reduced if sufficient evidence exists indicating that it is more likely than not that a portion or all of these deferred tax assets will be realized.

As of December 31, 2017 and 2016, the Company had U.S. federal net operating loss carryforwards of $5,351 and zero, respectively, which begin to expire in 2037. As of December 31, 2017, the Company had state net loss carryforwards of $48,091 and $44,666, which begin to expire in 2022. The Company had foreign net operating loss carryforwards of $13,068 and 12,912 at December 31, 2017 and 2016, respectively, which begin to expire in 2030.  

The Company received income tax refunds of $29,467 and $27,422 in 2017 and 2016, respectively.  The Company paid income taxes of $7,855 in 2015.

As of December 31, 2017, the Company had $27 of gross unrecognized tax benefits, $21 of which, if recognized, would affect the effective tax rate.  It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the uncertain tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change to have a significant effect on its results of operations, financial position or cash flows.  As of December 31, 2016, the Company had $208 of gross unrecognized tax benefits, $135 of which, if recognized, would affect the effective tax rate.     

The Company files income tax returns with the U.S. federal government and various state and foreign jurisdictions. The Internal Revenue Service completed audits of the Company’s income tax returns for the years 2013 through 2016 and the results of which are included in tax expense in the consolidated income statement.