ALASKA COMMUNICATIONS SYSTEMS GROUP INC

15.	INCOME TAXES

December 22, 2017,

H.R.

originally know

n as the Tax Cuts and Jobs Act, (“TCJA”) was enacted. The TCJA provides for sweeping changes in United States tax rates and tax provisions which will affect the Company as of

December 31, 2017

and for periods beginning after

January 1, 2018.

Effective for years beginning after

December 31, 2017,

the maximum corporate tax rate will decrease to a flat rate of

21%.

This decrease in the tax rate resulted in the remeasurement of existing deferred tax assets and liabilities as of the enactment date and resulted in a decrease to existing net deferred tax assets of

$3,851.

In addition, the TCJA provides for existing Federal AMT tax credits to be refunded from

2018

through

2021.

Accordingly, the Company has reclassified existing AMT tax credits of

$8,913

from non-current deferred tax assets to non-current long-term tax receivables. The federal AMT credits have been reduced by

$569

related to the applicable budget sequestration rate of

6.6%.

The Company has evaluated the TCJA and concluded that all information is available to complete the accounting for the effects of the tax reform.

The Company adopted ASU

2016

effective

January 1, 2017.

As required by ASU

2016

09,

the Company recorded a tax d

eficiency from share-based payments of

$67

in the provision for income taxes in the year ended

December 31, 2017,

which decreased net income by the same amount. A tax deficiency from share-based payments of

$47

in the year ended

December 31, 2016

was charged to additional paid-in capital in that period. ASU

2016

was adopted on a modified retrospective basis and the income tax provision reported for the years ended

December 31, 2016

and

2015

were

not

adjusted for this change. See Note

“

Summary of Significant Accounting Policies

” for additional information.

The Company adopted ASU

2018

effective

December 31, 2017.

As required by ASU

2018

02,

the Company reclassified

$425

from accumulated other comprehensive loss to accumulated deficit associated with certain stranded tax effects related to defined benefit pension plans and interest rate swaps remaining in accumulated other comprehensive loss. See Note

“

Summary of Significant Accounting Policies

.”

Consolidated

(loss) income before income tax was as follows:

		2017				2016				2015
(Loss) income before income tax		$	(3,646	)		$	3,752			$	23,085

The income tax provision for the years ended

December 31,

201

2016

and

2015

was comprised of the following:

	2017			2016			2015
Current:
Federal income tax	$	(90	)	$	(276	)	$	4,320
State income tax		6			6			693
Total current (benefit) expense		(84	)		(270	)		5,013
Deferred:
Federal, excluding operating loss carry forwards		2,772			1,680			69,774
State, excluding operating loss carry forwards		(169	)		228			19,725
Change in valuation allowance		65			(139	)		-
Tax benefit of operating loss carry forwards:
Federal		-			-			(66,285	)
State		-			-			(18,027	)
Total deferred expense		2,668			1,769			5,187
Total income tax expense	$	2,584		$	1,499		$	10,200

The following table provides a reconciliation of

income tax expense at the Federal statutory rate of

35%

to the recorded income tax expense for the years ended

December 31, 2017,

2016

and

2015,

respectively:

	2017			2016			2015
Computed federal income taxes at the statutory rate	$	(1,276	)	$	1,313		$	8,080
Expense (benefit) in tax resulting from:
State income taxes (net of Federal benefit)		(222	)		229			1,408
Enacted rate change		3,851			-			-
Other		122			(209	)		263
Stock-based compensation		44			27			449
Change in valuation allowance		65			139			-
Total income tax expense	$	2,584		$	1,499		$	10,200

Income tax

expense was charged to the statement of comprehensive (loss) income and statement of stockholders’ equity (deficit) as follows:

Statement of comprehensive (loss) income:
Income tax expense	$	2,584	$	1,499	$	10,200
Other comprehensive income (loss), tax effect	$	655	$	128	$	1,434
Statement of stockholders' equity (deficit):
Additional paid-in capital:
Excess tax expense (benefit) from share-based payments	$	-	$	47	$	(733	)

The Company accounts for income taxes under the asset-liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided when it is “more likely than

not”

that the benefits of existing deferred tax assets will

not

be realized in a future period.

As of

December 31, 2017

and

2016,

the Company had valuation allowances on certain state net operating loss carryforwards of

$204

and

$139,

respectively. As of

December 31, 2017

and

2016,

the change in the valuation allowance was

$65

and

$139,

respectively. At

December 31, 2017,

it is more likely than

not

that the results of future operations will generate sufficient taxable income to realize existing deferred tax assets, other than the state net operating loss carryforwards noted above. Therefore,

additional valuation allowance is necessary.

Significant components of the Company

’s deferred tax assets and liabilities as of

December 31, 2017

and

2016,

respectively, are as follows:

Deferred tax assets:
Net operating loss carry forwards	$	19,805		$	26,429
Deferred GCI capacity revenue		10,016			15,340
Reserves and accruals		7,910			12,499
Intangibles and goodwill		1,033			1,620
Fair value on interest rate swaps		-			25
Pension liability		927			1,804
Allowance for doubtful accounts		775			458
Alternative minimum tax carry forward		-			9,380
Other		-			257
Total deferred tax assets		40,466			67,812
Valuation allowance		(204	)		(139	)
Deferred tax assets after valuation allowance		40,262			67,673
Deferred tax liabilities:
Debt issuance costs		(5	)		(933	)
Property, plant and equipment		(37,287	)		(52,022	)
Fair value on interest rate swaps		(146	)		-
Other		(26	)		-
Total deferred tax liabilities		(37,464	)		(52,955	)
Net deferred tax asset	$	2,798		$	14,718

As of

December

31,

2017,

the Company has available Federal and state alternative minimum tax credits of

$8,622

and

$1,089,

respectively, which are classified as non-current income tax receivables, net of the

$569

sequestration adjustment. As of

December 31, 2017,

the Company has available Federal and state net operating loss carry forwards of

$78,068

and

$55,717,

respectively, which have various expiration dates beginning in

2031

through

2037.

The Company files

consolidated income tax returns for Federal and state purposes in addition to separate tax returns of certain subsidiaries in multiple state jurisdictions. As of

December 31, 2017,

the Company is

not

under examination by any income tax jurisdiction. The Company is

longer subject to examination in the United States for years prior to

2014.

The Company accounts for income tax uncertainties using a threshold of “more-likely-than-

not”

in accordance with the provisions of ASC Topic

740,

“Income Taxes.” As of

December 31, 2017,

the Company has reviewed all of its tax filings and positions taken on its returns and has

not

identified any material current or future effect on its consolidated results of operations, cash flows or financial position. As such, the Company has

not

recorded any tax, penalties or interest on tax uncertainties. It is Company policy to record any interest on tax uncertainties as a component of income tax expense.