11.      Income Taxes

 

The Company accounts for income taxes under ASC Topic 740 —Income Taxes ("ASC 740"). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

 

On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Reform Act") was signed into law. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, providing for the immediate expensing of certain domestic assets placed in service after September 22, 2017, and implementing a territorial tax system. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a provisional $105 income tax benefit in the Company’s consolidated statement of income for the year ended December 31, 2017.

 

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.

 

The Company's income (loss) before income taxes was $4,513,  $(5,709), and $(2,536) for the years ended December 31, 2017, 2016 and 2015, respectively, and the Company has no foreign sources of income or loss.

 

The expense (benefit) for income taxes consists of the following:

 

 

For the years ended December 31, 2017, 2016, and 2015 the Company had an effective tax rate of (216.8)%, (9.5%), and (12.9%) respectively. In conjunction with the acquisition of SRx in the third quarter of 2017, the Company recognized a net deferred tax liability of $9,624 primarily related to intangible assets other than goodwill. The Company determined that the deferred tax liabilities related to the acquisition and future income before taxes provide sufficient sources of recoverability to realize the Company’s deferred tax assets associated with those jurisdictions that file consolidated returns. As a result, the Company released $5,786 of its deferred tax asset valuation allowance.

 

For the years ended December 31, 2016 and 2015, the Company’s income tax provision was comprised of current Federal alternative minimum tax, current state taxes and deferred tax expense associated with indefinite-lived deferred tax liabilities for goodwill amortization, in addition to a change in the valuation allowance related to deferred tax assets for income generated in the current period.

 

As of December 31, 2017, the Company had federal net operating loss ("NOL") carryforwards of $29,821 and state NOL carry forwards of $17,053, each of which are available to reduce future taxable income. The NOL carryforwards, if not utilized, will begin to expire in 2029 for federal purposes and in 2021 for state purposes.

 

The tax benefits of uncertain tax positions are recognized only when the Company believes it is more likely than not that the tax position will be upheld on examination by the taxing authorities based on the merits of the position. The Company recognizes interest and penalties, if any, related to unrecognized income tax benefits in income tax expense. Through December 31, 2017, the Company had no unrecognized tax benefits or related interest and penalties accrued.

 

The principal components of the Company's deferred tax assets (liabilities) are as follows:

 

 

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2016, the Company recorded a full valuation allowance against its deferred tax assets because the Company's management determined that it was more-likely-than-not that the assets would not be fully realized. As noted above, in 2017 the Company determined that the deferred tax liabilities related to the SRx acquisition and its estimated future pretax income provided sufficient sources of recoverability to realize the Company’s deferred tax assets associated with those jurisdictions that file consolidated returns, and as a result the Company released $5,786 of its deferred tax asset valuation allowance as of December 31, 2017.

 

The changes in valuation allowance were as follows:

 

 

A reconciliation of income tax (expense) benefit at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows:

 

 

In the normal course of business, the Company is subject to examination by taxing authorities from the federal and state governments within the United States. As of December 31, 2017, the Company's tax years beginning in 2014 remain open for examination by taxing authorities.