As a partnership, we are generally not subject to federal income tax and most state income taxes. However, the Partnership conducts certain activities through corporate subsidiaries which are subject to federal and state income taxes. The components of the federal and state income tax expense (benefit) are summarized as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 |
| (in millions) |
Current: | |
| | |
| | |
|
Federal | $ | — |
| | $ | (65 | ) | | $ | (3 | ) |
State | 2 |
| | 1 |
| | 1 |
|
Total current income tax expense | 2 |
| | (64 | ) | | (2 | ) |
Deferred: | |
| | | | |
Federal | (302 | ) | | (12 | ) | | 12 |
|
State | (6 | ) | | 4 |
| | 19 |
|
Total deferred tax expense (benefit) | (308 | ) | | (8 | ) | | 31 |
|
Net income tax expense (benefit) | $ | (306 | ) | | $ | (72 | ) | | $ | 29 |
|
Our effective tax rate differs from the statutory rate primarily due to Partnership earnings that are not subject to U.S. federal and most state income taxes at the Partnership level. The completion of the acquisition of Susser on July 31, 2015 (see Note 3) significantly increased the activities conducted through corporate subsidiaries. A reconciliation of income tax expense at the U.S. federal statutory rate to net income tax expense (benefit) is as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 |
| (in millions) |
Tax at statutory federal rate of 35 percent | $ | 7 |
| | $ | (6 | ) | | $ | 65 |
|
Partnership earnings not subject to tax | (126 | ) | | (127 | ) | | (55 | ) |
Goodwill impairment | 36 |
| | 55 |
| | — |
|
Revaluation of investments in affiliates | — |
| | — |
| | 9 |
|
State and local tax, net of federal benefit | (6 | ) | | 4 |
| | 1 |
|
Statutory rate change | (225 | ) | | — |
| | 8 |
|
Other | 8 |
| | 2 |
| | 1 |
|
Net income tax expense (benefit) | $ | (306 | ) | | $ | (72 | ) | | $ | 29 |
|
In December 2017, the “Tax Cuts and Jobs Act” was signed into law. Among other provisions, the highest corporate federal income tax rate was reduced from 35% to 21% for taxable years beginning after December 31, 2017. As noted above, the effect on deferred tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. As such, a deferred tax benefit in the amount of $225 million was realized in 2017.
Deferred taxes result from the temporary differences between financial reporting carrying amounts and the tax basis of existing assets and liabilities. Principal components of deferred tax assets and liabilities are as follows:
|
| | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| (in millions) |
Deferred tax assets: | |
| | |
|
Environmental, asset retirement obligations, and other reserves | $ | 20 |
| | $ | 28 |
|
Inventories | (1 | ) | | 12 |
|
Net operating loss carry forwards | 79 |
| | 92 |
|
Other | 78 |
| | 61 |
|
Total deferred tax assets | 176 |
| | 193 |
|
Deferred tax liabilities: | | | |
Fixed assets | 324 |
| | 506 |
|
Trademarks and other intangibles | 169 |
| | 272 |
|
Investments in affiliates | 72 |
| | 58 |
|
Total deferred tax liabilities | 565 |
| | 836 |
|
Net deferred income tax liabilities | $ | 389 |
| | $ | 643 |
|
Our corporate subsidiaries have federal net operating loss carryforwards of $349 million as of December 31, 2017 which expire in 2033, 2034, 2035 and 2036. Our corporate subsidiaries also have state net operating loss benefits of $5 million, net of federal tax, most of which expire between 2029 and 2036. We have determined that it is more likely than not that all federal and state net operating losses will be utilized, and accordingly, no valuation allowance is required as of December 31, 2017.
The Partnership and its subsidiaries do not have any unrecognized tax benefits for uncertain tax positions as of December 31, 2017 or 2016. The Partnership believes that all tax positions taken or to be taken will more likely than not be sustained under audit, and accordingly, we do not have any unrecognized tax benefits.
Our policy is to accrue interest and penalties on income tax underpayments (overpayments) as a component of income tax expense. We did not have any material interest and penalties in the periods presented.
The Partnership and its subsidiaries are no longer subject to examination by the Internal Revenue Service (“IRS”) for 2013 and prior years. In the first quarter of 2017, the IRS closed an income tax audit of Susser Holdings Corporation (“SHC”)’s 2014 tax year, and SHC completed the appeal of its 2010 and 2012 Texas margin tax years. The State of Pennsylvania is currently conducting an income tax audit of Sunoco LLC’s 2014 and 2015 tax years.