18. Income Taxes
The Partnership is not a taxable entity for United States federal income tax purposes or for the majority of states that impose an income tax. Taxes on our net income generally are borne by our partners through the allocation of taxable income. Our consolidated REIT Subsidiary files as a corporation for U.S. federal income tax purposes. The REIT Subsidiary has elected to be treated as a REIT and may deduct earnings distributed to stockholders against the income generated by its REIT operations, therefore it does not have any federal income tax liability. Additionally, our wholly owned subsidiary Asset OpCo conducts certain activities that may not generate qualifying income and will be treated as a corporation for U.S. federal and state income tax purposes. In addition, certain subsidiaries of the Partnership are subject to corporate income tax in the foreign jurisdictions where we own assets and generate taxable income. The following information pertains to the Partnership’s income taxes on a consolidated basis.
Income before income tax benefit by geographic area is as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Domestic |
|
$ |
15,259 |
|
|
$ |
10,554 |
|
|
$ |
1,179 |
|
|
Foreign |
|
|
872 |
|
|
|
(633 |
) |
|
|
26 |
|
|
Total |
|
$ |
16,131 |
|
|
$ |
9,921 |
|
|
$ |
1,205 |
|
For the year ended December 31, 2017, income tax benefit consisted of the following (in thousands):
|
|
|
Year Ended December 31, |
|
|
|
|
|
2017 |
|
|
|
Current |
|
|
|
|
|
Domestic |
|
$ |
— |
|
|
Foreign |
|
|
70 |
|
|
Deferred |
|
|
|
|
|
Domestic |
|
|
(3,215 |
) |
|
Foreign |
|
|
— |
|
|
Income tax benefit |
|
$ |
(3,145 |
) |
For the years ended December 31, 2016 and 2015, income tax expense (benefit) was zero.
The statutory federal income tax rate is 34 percent (for all years presented) and the foreign income tax rates range from 15 percent to 39 percent. The difference between income tax benefit recorded by us and income taxes computed by applying the statutory corporate income tax rates to income before income tax benefit is due to the fact that the majority of our income is not subject to federal, state and foreign income tax as described above.
Reconciliation between the U.S. statutory rate and the effective rate from income before income tax benefit is as follows:
|
|
|
Year Ended December 31, |
|
|
|
|
|
2017 |
|
|
|
Statutory tax rate |
|
|
34 |
% |
|
Adjustment to reflect MLP/REIT status |
|
|
(29 |
)% |
|
Valuation allowance |
|
|
(32 |
)% |
|
Change in tax law |
|
|
9 |
% |
|
Other |
|
|
(1 |
)% |
|
Effective tax rate |
|
|
(19 |
)% |
Deferred income taxes are recorded based on temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities and operating loss carry forwards. Asset OpCo routinely assesses its ability to realize its deferred tax assets. If Asset OpCo concludes that it is more likely than not that some or all of the deferred tax assets will not be realized, the tax asset is reduced by a valuation allowance.
The statutory federal income tax rate is 21 percent for valuation of the deferred tax assets and liabilities in future years resulting in a decrease in deferred tax asset of $1.5 million from December 31, 2016 to December 31, 2017. Asset OpCo believes it is more likely than not that the deferred tax asset will be realized and reduced its valuation allowance by $5.3 million, included in income tax benefit for the year ended December 31, 2017, resulting in zero valuation allowance as of December 31, 2017. During the year ended December 31, 2016, Asset OpCo’s acquisition activity and results of operations generated $5.5 million in deferred taxes with a valuation allowance of $5.3 million. For the years ended December 31, 2017 and 2016, there was no deferred tax liability. The change in deferred taxes is primarily a result of differences between book and tax bases of the contributed and purchased assets into Asset OpCo, and operating loss carry forwards.
Asset OpCo generated a NOL for the year ended December 31, 2017 and 2016 which can be used to offset taxable income in future and prior years, subject to specified limitations. At December 31, 2017 and 2016 Asset OpCo had an NOL carryforward of $0.1 million and $5.2 million, translating to a deferred tax asset before valuation allowance of less than $0.1 million and $2.1 million, respectively. The federal NOL carryforwards expire beginning in 2035.
As of December 31, 2017 and 2016, we had no liability reported for unrecognized tax benefits. We did not have any significant interest or penalties related to income taxes during the years ended December 31, 2017, 2016, and 2015.