Ranger Energy Services, LLC is treated as a partnership for U.S. federal income tax purposes and is not subject to federal or state income taxation. As a partner in Ranger Energy Services, LLC, the Company is subject to U.S. taxation on our allocable share of U.S. taxable income and the non-controlling interest members will pay taxes with respect to its allocable share of U.S. taxable income.
The Company is a corporation and is subject to U.S. federal income tax. The tax implications of the Offering and the Company’s concurrent corporate reorganization, and the tax impact of the Company’s status as a taxable corporation subject to U.S. federal income tax have been reflected in the accompanying consolidated financial statements. The effective U.S. federal income tax rate applicable to the Company for the year ended December 31, 2017 and 2016 was 35.0% and 0.0%, respectively. Total income tax expense for the year ended December 31, 2017 differed from amounts computed by applying the U.S. federal statutory tax rate of 35% primarily due to the increase in the valuation allowance against the deferred tax assets in addition to the adjustment for non-controlling interest that is not subject to federal tax.
A reconciliation of the expected income tax expense on income (loss) before income taxes using the statutory federal income tax rate of 35% for 2017 to income tax expense follows (in millions):
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December 31, |
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2017 |
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Income (loss) before income taxes |
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$ |
(26.9) |
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Statutory rate |
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35.0 |
% |
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Income tax expense (benefit) computed at statutory rate |
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$ |
(9.4) |
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Reconciling items |
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State income taxes (benefit), net of federal tax benefit |
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0.2 |
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Nontaxable income allocated to non-controlling interest |
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1.9 |
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Nontaxable income allocated to predecessor |
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5.3 |
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Change in rates |
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1.4 |
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Valulation allowance |
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1.0 |
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Income Tax expense (benefit) |
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$ |
0.4 |
|
As a result of the Offering and subsequent reorganization, the Company recorded a deferred tax asset; however, a full valuation allowance has been recorded to reduce the Company’s net deferred tax assets to an amount that is more likely than not to be realized and is based upon the uncertainty of the realization of certain federal and state deferred tax assets related to net operating loss carryforwards and other tax attributes. The tax effects of the cumulative temporary differences resulting in the net deferred income tax asset (liability) are as follows (in millions):
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December 31, |
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2017 |
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2016 |
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Deferred income tax assets: |
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Equity based compensation |
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$ |
0.3 |
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$ |
— |
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Net operating loss carryforward |
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6.2 |
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— |
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Total non-current deferred income tax asset |
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6.5 |
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— |
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Valuation allowance |
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(2.3) |
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— |
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Net non-current deferred income tax asset |
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4.2 |
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— |
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Deferred income tax liabilities |
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Investment in partnership |
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(4.2) |
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— |
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Total non-current deferred income tax asset (liability) |
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$ |
— |
|
$ |
— |
As of December 31, 2017, the Company has net operating loss carryforwards of approximately $6.2 million; consisting of $2.2 million of section 382 limited losses expiring beginning in 2033, and an estimated $4.0 million of non-section 382 limited losses expiring beginning in 2037.