9. INCOME TAXES

 

Our total provision from income taxes consists of the following for the years ended December 31, 2017, 2016, and 2015:

 

(in thousands)		2017			2016			2015
Current income tax provision:
Federal		$	13,175		$	11,717		$	7,264
State			690			1,321			611
Total			13,865			13,038			7,875
Deferred income tax provision/(benefit):
Federal			4,065			(8,387)			(1,468)
State			(556)			(658)			(409)
Total			3,509			(9,045)			(1,877)
Change in valuation allowance			51			134			-
Excess tax benefit from stock-based compensation awards			-			617			360
Total provision for income taxes		$	17,425		$	4,744		$	6,358

The difference between our expected income tax provision from applying federal statutory tax rates to the pre-tax income and actual income tax provision relates primarily to the effect of the following:

 

		As of December 31,
		2017			2016			2015
US Federal statutory rate			35.0	%		35.0	%		35.0	%
State taxes, net of Federal benefit			2.0	%		2.1	%		2.1	%
Impact of Tax Cuts and Jobs Act			81.9	%		-	%		-	%
International tax structure impacts			-	%		23.3	%		-	%
Domestic production activities deduction			(8.8)	%		(14.4)	%		(5.3)	%
Change in valuation allowance			-	%		1.6	%		-	%
Stock-based compensation – no windfall tax benefits			1.0	%		5.7	%		1.1	%
Stock-based compensation – windfall tax benefit			(0.2)	%		-	%		(0.1)	%
Change in tax rates and other			(4.3)	%		1.4	%		(3.5)	%
Total income tax provision/(benefit)			106.6	%		54.7	%		29.3	%

 

The most significant impact on our effective tax rate in 2017 was the revaluation of our deferred tax assets and liabilities at the lower 21% U.S. corporate tax rate, as proscribed by the Tax Cuts and Jobs Act, which was enacted on December 22, 2017 and will lower the U.S. corporate tax rate from 35% to 21%, beginning in 2018. We measure our deferred tax assets and liabilities using the tax rates that we believe will apply in the years in which the temporary differences are expected to be recovered or paid. As a result, we remeasured our deferred tax assets and deferred tax liabilities to reflect the reduction in the enacted U.S. corporate income tax rate, resulting in a net $13.4 million increase in income tax expense for the year ended December 31, 2017.

 

Deferred income taxes reflect the net tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Our deferred income tax assets and liabilities consisted of the following:

 

		As of December 31,
(in thousands)		2017			2016
Deferred tax assets:
Accruals and advances		$	5,254		$	3,002
Bond hedge			5,617			10,921
Accruals for chargebacks and returns			4,927			7,137
Inventory			857			1,255
Intangible asset			6,355			6,302
Net operating loss carryforward			3,029			5,095
Other			3,030			1,680
Total deferred tax assets		$	29,069		$	35,392
Deferred tax liabilities:
Depreciation		$	(1,110)		$	(857)
Debt discount			(3,256)			(7,664)
Intangible assets			(11)			(353)
Other			(1,699)			(16)
Total deferred tax liabilities		$	(6,076)		$	(8,890)
Valuation allowance			(326)			(275)
Total deferred tax asset, net		$	22,667		$	26,227

 

 

 

We are subject to income taxes in numerous jurisdictions in the U.S. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. We establish liabilities for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These liabilities are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these liabilities in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of changes to the liability that is considered appropriate. We identified no material uncertain tax positions as of December 31, 2017 and 2016.

 

We are subject to income tax audits in all jurisdictions for which we file tax returns. Tax audits by their nature are often complex and can require several years to complete. Neither ANI Pharmaceuticals, Inc. nor any of its subsidiaries is currently under audit in any jurisdiction. All of our income tax returns remain subject to examination by tax authorities due to the availability of net operating loss carryforwards.