Note 6 -     Income Taxes

As a result of the IPO and related reorganization transactions completed in July 2017, the Company holds an economic interest of approximately 62% in HoldCo and consolidates the financial position and results of HoldCo.  The approximate 38% of HoldCo not held by the Company is considered non-controlling interest.  HoldCo is treated as a partnership for income tax reporting.  HoldCo’s members, including the Company, are liable for federal, state, and local income taxes based on their share of HoldCo’s taxable income. 

Prior to the IPO, the Company’s predecessor for financial reporting purposes was Opco, which is a limited liability company, and the majority of Opco’s businesses and assets are held and operated by limited liability companies, which are not subject to entity-level federal or state income taxation.  Opco makes cash distributions to permit the member to pay these taxes as needed by the member’s tax situation.  In the years ended December 31, 2017 and 2016, the Company did not make any cash distributions. In the year ended December 31, 2017 Opco accrued $597 thousand for anticipated tax distributions to Continuing LLC Owners. This liability is included in accounts payable on the consolidated balance sheet. 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code which impacted 2017 including, but not limited to, reducing the U.S. federal corporate tax rate from 35 to 21 percent and requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. U.S. GAAP requires the impact of tax legislation to be recorded in the period of enactment.  Staff Accounting Bulletin (SAB) 118 establishes a one-year measurement period to complete the accounting for the ASC 740 income tax effects of the Tax Act.  An entity recognizes the impact of those amounts for which the accounting is complete.  For matters that have not been completed, provisional amounts are recorded to the extent they can be reasonably estimated.  For amounts for which a reasonable estimate cannot be determined, no adjustment is made until such estimate can be completed.

The Company was able to make reasonable estimates of the impact of the Tax Act and have recorded provisional amounts for the deemed repatriation tax, and the remeasurement of deferred taxes.  We recorded a provisional net tax expense of $3.6 million in the period ended December 31, 2017 attributable to the Tax Act.  This net expense consists of an expense of $0.2 million for the Company’s allocated share of the one-time transition tax on unrepatriated earnings of foreign subsidiaries and a net expense of $3.4 million primarily due to the remeasurement of deferred tax assets associated with the corporate rate reduction. 

 

These estimates may be impacted as we further analyze available tax accounting methods and elections, earnings and profits computations, state tax conformity to federal tax changes and guidance issued by standard-setting bodies that provide interpretative guidance of the Tax Act.

 

The components of earnings before income taxes, determined by tax jurisdiction, are as follows:

 

 

The provision for income taxes for 2017, 2016, and 2015 consisted of the following:

 

 

Reconciliation between the effective tax rate on income from continuing operations and the statutory tax rate is as follows:

 

Our effective income tax rate differs from statutory rates primarily due to our pass-through entity structure for U.S. income tax purposes.

 

As a result of the IPO and reorganization transactions, the Company has recorded deferred tax assets and liabilities based on the differences between the book value of assets and liabilities for financial reporting purposes and those amounts applicable for income tax purposes. Deferred tax assets have been recorded for the basis differences resulting from the purchase of LLC Interests from existing members and newly issued LLC Interests acquired directly from Holdco. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows:

 

 

The Company has a valuation allowance for certain deferred tax assets of $237 thousand and $91 thousand, as of December 31, 2017 and December 31, 2016, respectively. The valuation allowance pertains to certain international loss carryforwards, some of which have no expiration and others that would expire beginning in 2018.

 

The Tax Act contains a new law that requires a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations, also known as the tax on global intangible low taxed income (GILTI), beginning in 2018. The FASB has provided that companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences, including outside basis differences, expected to reverse as GILTI.  Due to the complexity of the new GILTI rules, we are continuing to evaluate this provision of the Tax Act. We have not recorded any provisional amounts as of December 31, 2017 nor have we made an accounting policy choice of including taxable income related to GILTI as either a current period tax expense or factoring such amounts into our measurement of deferred taxes.

 

The Company has not recognized any uncertain tax positions, penalties or interest as we have concluded that no such positions exist. Accordingly, no unrecognized tax benefit would impact the effective tax rate. If interest and penalties were accrued, we would recognize interest and penalties as income tax expense. We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2017, tax years for 2014, 2015, and 2016 are subject to examination by the tax authorities. With few exceptions, as of December 31, 2017, we are no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2014.