INCOME TAXES
The components of income tax expense from continuing operations are as follows:
|
| | | | | | | | | | | |
| For the Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In millions) |
Current: | | | | | |
Federal | $ | 59.1 |
| | $ | 83.8 |
| | $ | 84.9 |
|
State | 8.3 |
| | 10.7 |
| | 10.2 |
|
Total current income tax expense | 67.4 |
| | 94.5 |
| | 95.1 |
|
Deferred: | | | | | |
Federal | 1.2 |
| | 4.9 |
| | 6.8 |
|
State | 1.4 |
| | 1.2 |
| | 2.1 |
|
Total deferred income tax expense | 2.6 |
| | 6.1 |
| | 8.9 |
|
Total income tax expense | $ | 70.0 |
| | $ | 100.6 |
| | $ | 104.0 |
|
A reconciliation of the statutory federal rate to the effective tax rate from continuing operations is as follows (dollar amounts shown in millions): |
| | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2017 | | % | | 2016 | | % | | 2015 | | % |
Income tax provision at the statutory rate | $ | 73.2 |
| | 35.0 |
| | $ | 93.7 |
| | 35.0 |
| | $ | 95.7 |
| | 35.0 |
State income tax expense, net of federal benefit | 6.4 |
| | 3.0 |
| | 7.8 |
| | 2.9 |
| | 8.0 |
| | 2.9 |
Non-deductible / non-tax items | (0.3 | ) | | (0.1 | ) | | 0.2 |
| | 0.1 |
| | 0.3 |
| | 0.1 |
Effect of enactment of tax reform | (7.9 | ) | | (3.8 | ) | | — |
| | — |
| | — |
| | — |
Adjustments and settlements | (0.6 | ) | | (0.3 | ) | | (0.8 | ) | | (0.3 | ) | | — |
| | — |
Other, net | (0.8 | ) | | (0.3 | ) | | (0.3 | ) | | (0.1 | ) | | — |
| | — |
Income tax expense | $ | 70.0 |
| | 33.5 |
| | $ | 100.6 |
| | 37.6 |
| | $ | 104.0 |
| | 38.0 |
Deferred income tax asset and liability components consisted of the following: |
| | | | | | | |
| As of December 31, |
| 2017 | | 2016 |
| (In millions) |
Deferred income tax assets: | | | |
F&I chargeback liabilities | $ | 11.1 |
| | $ | 16.5 |
|
Other accrued liabilities | 3.4 |
| | 4.7 |
|
Stock-based compensation | 3.9 |
| | 5.2 |
|
Other, net | 5.5 |
| | 8.4 |
|
Total deferred income tax assets | 23.9 |
| | 34.8 |
|
Deferred income tax liabilities: | | | |
Intangible asset amortization | (8.4 | ) | | (7.3 | ) |
Depreciation | (27.1 | ) | | (34.9 | ) |
Other, net | (0.9 | ) | | (1.5 | ) |
Total deferred income tax liabilities | (36.4 | ) | | (43.7 | ) |
Net deferred income tax liabilities | $ | (12.5 | ) | | $ | (8.9 | ) |
There were no valuation allowances recorded against the deferred tax assets as of December 31, 2017 or 2016. As of December 31, 2017, we had pre-paid income taxes of $15.2 million, which were included in Other Current Assets. As of December 31, 2016, we had $19.8 million of income taxes payable, which were included in Accounts Payable and Accrued Liabilities.
As of December 31, 2016, the net amount of our unrecognized tax benefits was $0.8 million, which if recognized, would not impact our effective tax rate. There was no unrecognized tax benefits as of December 31, 2017 or 2015.
The statutes of limitations related to our consolidated Federal income tax returns are closed for all tax years up to and including 2014. The expiration of the statutes of limitations related to the various state income tax returns that we and our subsidiaries file varies by state. The 2010 through 2016 tax years generally remain subject to examination by most state tax authorities. We believe that our tax positions comply with applicable tax law and that we have adequately provided for these matters.
Tax Reform
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affects 2017, including, but not limited to, accelerated depreciation that will allow for full expensing of qualified property. The Tax Act also establishes new tax laws that will affect 2018 and after, including a reduction in the U.S. federal corporate income tax rate from 35% to 21%.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) on December 22, 2017, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.
We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances and impact future taxable income. The provisional amount recorded related to the remeasurement of our deferred tax balance was a reduction of $7.9 million to our net deferred tax liability.
We have not been able to make a reasonable estimate of the potential impact of the effect of the new limitations under Internal Revenue Code Section 162(m) as it relates to the deferred tax asset for certain components of share-based compensation and continue to account for the deferred tax asset based on the provisions of the tax laws that were in effect immediately prior to enactment. We will complete our accounting for the Tax Act after we have considered additional guidance issued by the U.S. Treasury Department, the IRS, state tax authorities and other standard-setting bodies, and we have gathered and analyzed additional data relative to our calculations. This may result in adjustments to our provisional amounts, which would impact our provision for income taxes and effective tax rate in the period the adjustments are made. We will complete our accounting for the Tax Act in 2018.