PAM TRANSPORTATION SERVICES INC

11.	FEDERAL AND STATE INCOME TAXES

Under GAAP, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax reporting purposes.

Significant components of the Company

’s deferred tax liabilities and assets at

December 31

are as follows:

	201 7		201 6
	(in thousands)

Deferred tax liabilities:
Property and equipment	$	60,388	$	85,233
Unrealized gains on securities		2,580		4,576
Prepaid expenses and other		2,603		3,230

Total deferred tax liabilities		65,571		93,039

Deferred tax assets:
Allowance for doubtful accounts		344		378
Alternative minimum tax credit carryforward		-		1,214
QAFMV tax credit carryforward		864		864
New hire tax credit		124		124
Compensated absences		410		650
Self-insurance allowances		149		748
Share-based compensation		61		(54	)
Goodwill		-		9
Marketable equity securities		750		1,244
Net operating loss carryover		7,975		7,545
Non-competition agreement		-		7
Other		203		17

Total deferred tax assets		10,880		12,746

Net deferred tax liability	$	54,691	$	80,293

The reconciliation between the effective income tax rate and the statutory Federal income tax rate for the years ended

December

31,

2017,

2016

and

2015

is presented in the following table:

	201 7						201 6				201 5
	(in thousands)
	Amount			Percent			Amount		Percent		Amount		Percent

Income tax at the statutory federal rate	$	4,975			34.0		$	6,042		34.0	$	11,876		34.0
Impact of the Tax Cut s and Jobs Act		(29,255	)		(199.9	)		-		-		-		-
Nondeductible expenses		72			0.5			130		0.7		149		0.4
State income taxes/other —net of federal benefit		(60	)		(0.5	)		499		2.8		1,467		4.2

Total income tax (benefit) expense	$	(24,268	)		(165.9	)	$	6,671		37.5	$	13,492		38.6

________________

(

)

December 22, 2017,

the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act includes numerous changes to existing tax law, including a permanent reduction in the federal corporate income tax rate from

35%

21%

effective

January 1, 2018

and repeal of the alternative minimum tax (“AMT”) allowing a refund of existing AMT carryovers during the years

2018

through

2021.

As a result, the Company recorded a tax benefit of

$29.3

million in the

fourth

quarter of

2017

related to the revaluation of its net deferred tax liabilities.

The

(benefit) provision for income taxes consisted of the following:

	201 7			201 6			201 5
	(in thousands)
Current:
Federal	$	(79	)	$	(225	)	$	98
State		441			238			493
Total current income tax provision		362			13			591
Deferred:
Federal		(24,622	)		5,506			10,782
State		(8	)		1,152			2,119
Total deferred income tax (benefit) provision		(24,630	)		6,658			12,901

Total income tax (benefit) expense	$	(24,268	)	$	6,671		$	13,492

December 31, 2017,

the Company has alternative minimum tax credits of approximately

$1,214,000

which will either be refunded at the rate of

50%

of the remaining credit each succeeding year, or used to offset regular Federal income tax in those succeeding years. The Company has general business credits of approximately

$988,000

December 31, 2017,

which begin to expire after the year

2030.

The Company also has net operating loss carryovers for federal income purposes of approximately

$30,983,000

which begin to expire after the year

2030.

In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of ASC

740

30,

weighs all available evidence, both positive and negative to determine whether, based on the weight of that evidence, a valuation allowance is necessary. If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance. As of

December 31,

201

and

2016,

management determined that the future reversals of existing taxable temporary differences and available tax strategies would generate sufficient future taxable income to realize its tax assets and therefore a valuation allowance was

not

necessary.

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than

not

that the position will be sustained on examination by taxing authorities, based on the technical merits of the position. As of

December 31,

201

an adjustment to the Company’s consolidated financial statements for uncertain tax positions has

not

been required as management believes that the Company’s tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws. The Company recognizes interest and penalties related to uncertain income tax positions, if any, in income tax expense. During

2017

and

2016,

the Company has

not

recognized or accrued any interest or penalties related to uncertain income tax positions.

The Company and its subsidiaries are subject to U.S. and Canadian federal income tax laws as well as the income tax laws of multiple state jurisdictions. The major tax jurisdictions in which the Company operates generally provide for a deficiency assessment statute of limitation period of

three

years and as a result, the Company

’s tax years

2014

and forward remain open to examination in those jurisdictions.

The Company contracts with a

third

-party qualified intermediary in order to maintain a like-kind exchange tax program. Under the program, dispositions of eligible trucks or trailers and acquisitions of replacement trucks or trailers are made in a form whereby any associated tax gains related to the disposal are deferred. To qualify for like-kind exchange treatment

, we exchange, through our qualified intermediary, eligible trucks or trailers being disposed with trucks or trailers being acquired that allows us to generally carryover the tax basis of the trucks or trailers sold. The program is expected to result in a significant deferral of federal and state income taxes. Under the program, the proceeds from the sale of eligible trucks or trailers carry a Company-imposed restriction for the acquisition of replacement trucks or trailers. These proceeds

may

be disqualified under the program at any time and at the Company’s sole discretion; however, income tax deferral would

not

be available for any sale for which the Company disqualifies the related proceeds. At

December

31,

2017

and

2016,

the Company had

$29,000

and

$167,000

of restricted cash held by the

third

-party qualified intermediary. Restricted cash is accounted for in “Accounts receivable-other”.