Note 20 – Income Tax
Our income tax expense (benefit) is summarized below:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current expense |
$ |
(4.5 |
) |
|
$ |
— |
|
|
$ |
0.8 |
|
|
Deferred expense (benefit) |
|
(2.9 |
) |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
Total income tax expense (benefit) |
$ |
(7.4 |
) |
|
$ |
(0.3 |
) |
|
$ |
0.6 |
|
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 makes broad and complex changes to the Internal Revenue Code of 1986, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits are realized; (3) creating a new limitation on deductible interest expense; and (4) changing rules related to uses and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
In connection with our initial analysis of the impact of the Tax Act, we recorded a discrete net deferred tax benefit of $1.0 million in the period ending December 31, 2017, for TPL Arkoma, Inc. This net deferred tax benefit consists of the corporate tax rate reduction. For various reasons that are discussed more fully below, we have not completed our accounting for the income tax effects of certain elements of the Tax Act. We were able to make reasonable estimates that we recorded as provisional adjustments with regard to said elements.
Our accounting for the following elements of the Tax Act is complete:
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|
• |
We reclassified $0.3 million of alternative minimum tax credits from deferred tax assets to long term assets. We expect to receive this amount as a refund in the years ended 2019, 2020 and 2021. |
Our accounting for the following elements of the Tax Act is incomplete. However, we are able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments as follows:
|
|
• |
Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21%, effective January 1, 2018. We recorded a provisional deferred tax benefit of $1.0 million for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act including but not limited to changes to our cost recovery assumptions and the state tax effect of adjustments to federal temporary differences. |
|
|
• |
Cost recovery: We have not yet completely inventoried and analyzed our 2017 capital expenditures that qualify for bonus expensing. We have recorded a provisional tax depreciation expense of $0.7 million which does not include full expensing of all qualifying capital expenditures. |
Prior to the TRC/TRP Merger, the Partnership was subject to the Texas margin tax, consisting generally of a 0.75% tax on the amounts by which total revenues exceed cost of goods sold, as apportioned to Texas. After the TRC/TRP Merger, TRC is the reporting company for the combined group. The Partnership still has audit responsibility for the pre-Merger years. The Partnership's current tax expense includes a $5.3 million refund of Texas Margin Tax for tax years 2011 to 2015.
As part of the TPL Merger in 2015, we acquired TPL Arkoma, Inc., a corporate subsidiary subject to federal and state income tax. Our corporate subsidiary accounts for income taxes under the asset and liability method and provides deferred income taxes for all significant temporary differences.
Our deferred income tax assets and liabilities at December 31, 2017 and 2016, consisted of differences related to the timing of recognition of certain types of costs as follows:
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
$ |
13.7 |
|
|
$ |
19.8 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant, and equipment |
|
(37.7 |
) |
|
|
(46.7 |
) |
|
Net deferred tax asset (liability) |
$ |
(24.0 |
) |
|
$ |
(26.9 |
) |
As of December 31, 2017, TPL Arkoma, Inc. had net operating loss carry forwards for federal income tax purposes of approximately $53.0 million, which expire at various dates from 2029 to 2037. Management believes it more likely than not that the deferred tax asset will be fully utilized.