Primoris Services Corp

Note 20—Income Taxes

The components of the provision for income taxes are as follows (in thousands):


	2017		2016		2015
Current provision (benefit)
Federal	$	21,509	$	4,726	$	26,948
State		3,371		5,423		3,640
Foreign		(188)		92		362
		24,692		10,241		30,950
Deferred provision (benefit)
Federal		1,958		11,560		(7,099)
State		1,219		(727)		155
Foreign		(36)		72		(60)
		3,141		10,905		(7,004)
Change in valuation allowance		600		—		—
Total	$	28,433	$	21,146	$	23,946

A reconciliation of the U.S. statutory federal income tax rate related to pretax income to the effective tax rate for the periods indicated is as follows:


	2017	2016	2015
U.S. federal statutory income tax rate	35.0 %	35.0 %	35.0 %
State taxes, net of federal income tax impact	2.9 %	6.4 %	4.2 %
Foreign tax credit	0.0 %	(0.4)%	(0.5)%
Canadian income tax (benefit) provision	(0.2)%	0.4 %	0.5 %
Domestic production activities deduction	(2.3)%	(1.1)%	(3.9)%
Nondeductible meals & entertainment	2.8 %	5.4 %	5.1 %
Other items	(0.7)%	(1.5)%	(1.0)%
Effective tax rate excluding the impact of the Tax Act and income attributable to noncontrolling interests	37.5 %	44.2 %	39.4 %
Deferred tax liability remeasurement benefit from the Tax Act	(9.3)%	0.0 %	0.0 %
Effective tax rate excluding income attributable to noncontrolling interests	28.2 %	44.2 %	39.4 %
Impact of income from noncontrolling interests on effective tax rate	(1.2)%	(0.9)%	(0.2)%
Effective tax rate	27.0 %	43.3 %	39.2 %

Deferred taxes are recognized for temporary differences between the financial reporting bases and tax bases of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based upon consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income, the length of the tax asset carryforward periods, and tax planning strategies.

SAB 118 provides guidance on accounting for uncertainties of the effects of the Tax Act. Specifically, SAB 118 allows companies to record provisional estimates of the impact of the Tax Act during a one year “measurement period” similar to that used when accounting for business combinations.

As a result of the Tax Act, we remeasured deferred tax assets and liabilities using the newly enacted tax rates and recorded a one-time net tax benefit of $9.4 million in the period ended December 31, 2017. This tax benefit is a provisional estimate that could be revised once we finalize our deductions for tax depreciation and executive compensation accruals. We may also revise our estimate based on any additional guidance issued by the U.S. Treasury Department, the U.S. Internal Revenue Service, and other standard-setting bodies.

The tax effect of temporary differences that give rise to deferred income taxes for the years ended December 31, 2017 and 2016 are as follows (in thousands):


	2017		2016
Deferred tax assets:
Accrued compensation	$	3,323	$	5,804
Accrued workers compensation		6,197		9,855
Capital loss carryforward		—		1,077
Foreign tax credit		1,456		1,349
Insurance reserves		2,544		3,248
Loss reserves		2,215		4,841
Pension liability		—		1,979
State income taxes		2,233		2,011
Other		202		288
Total deferred tax assets		18,170		30,452
Deferred tax liabilities
Depreciation and amortization		(30,555)		(38,327)
Prepaid expenses and other		(586)		(1,955)
Total deferred tax liabilities		(31,141)		(40,282)

Valuation allowance		(600)		—

Net deferred tax liabilities	$	(13,571)	$	(9,830)

As of December 31, 2017, the tax effects of state net operating loss carryforwards were $0.8 million, state tax credit carryforwards were $1.1 million, and foreign tax credit carryforwards were $1.5 million. These carryforwards will begin to expire in 2021, 2025, and 2019, respectively. We determined it is more likely than not that a portion of our deferred tax asset related to foreign tax credits will be not be realized; a valuation allowance of $0.6 million was recorded.

A reconciliation of the beginning and ending and aggregate changes in the gross balances of unrecognized tax benefits for each period is as follows (in thousands):


	2017		2016		2015
Beginning balance	$	—	$	—	$	456
Increases in balances for tax positions taken during the current year		592		—		—
Increases in balances for tax positions taken during prior years		—		—		—
Settlements and effective settlements with tax authorities		—		—		(456)
Lapse of statute of limitations		—		—		—
Total	$	592	$	—	$	—

We recognize accrued interest and penalties related to uncertain tax positions in income tax expense, which were not material for the three years presented.

We believe it is reasonably possible that decreases between $0 and $0.1 million of unrecognized tax benefits could occur in the next twelve months due to the expiration of statutes of limitation.

Our federal income tax returns are generally no longer subject to examination for tax years before 2014. The statutes of limitation of state and foreign jurisdictions generally vary between 3 to 5 years. Accordingly, the tax years 2012 through 2016 remain open to examination by the other taxing jurisdictions in which we operate.