12. Income Taxes
Income tax (benefit) expense consisted of the following for the years ended December 31, 2017, 2016 and 2015:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
1,150 |
|
|
$ |
(197 |
) |
|
$ |
3,580 |
|
|
State |
|
|
1,244 |
|
|
|
1,042 |
|
|
|
285 |
|
|
Total current tax expense |
|
|
2,394 |
|
|
|
845 |
|
|
|
3,865 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(6,373 |
) |
|
|
(1,282 |
) |
|
|
1,052 |
|
|
State |
|
|
(1,039 |
) |
|
|
(783 |
) |
|
|
(137 |
) |
|
Total deferred tax (benefit) expense |
|
|
(7,412 |
) |
|
|
(2,065 |
) |
|
|
915 |
|
|
Total income tax (benefit) expense |
|
$ |
(5,018 |
) |
|
$ |
(1,220 |
) |
|
$ |
4,780 |
|
The company’s effective income tax rate for the years ended December 31, 2017, 2016 and 2015 reconciles with the federal statutory rate as follows:
|
|
|
Year Ended December 31, |
|
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|
|||
|
Federal statutory rate |
|
|
35.0 |
|
% |
|
35.0 |
|
% |
|
35.0 |
|
% |
|
State income taxes, net of federal tax benefit |
|
|
1.7 |
|
|
|
3.2 |
|
|
|
3.5 |
|
|
|
Effect of Tax Cuts and Jobs Act |
|
|
(11.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
Non-deductible expenses |
|
|
(1.2 |
) |
|
|
(2.2 |
) |
|
|
2.7 |
|
|
|
Stock compensation adjustment |
|
|
(5.1 |
) |
|
|
(15.8 |
) |
|
|
— |
|
|
|
Return to provision adjustment |
|
|
(0.3 |
) |
|
|
(2.6 |
) |
|
|
— |
|
|
|
Change in valuation allowance |
|
|
(2.4 |
) |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
Benefit from tax deductible dividends |
|
|
— |
|
|
|
— |
|
|
|
(1.9 |
) |
|
|
State tax credits |
|
|
— |
|
|
|
— |
|
|
|
(2.7 |
) |
|
|
Other differences |
|
|
0.5 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
Effective income tax rate on income before taxes |
|
|
16.7 |
|
% |
|
17.5 |
|
% |
|
36.4 |
|
% |
The difference between the Company’s effective tax rate and federal statutory rate for 2017 is 18.3%, which is primarily due to the tax treatment of stock compensation and the effect of the Tax Cuts and Jobs Act.
Deferred income tax assets (liabilities) are comprised of the following at December 31, 2017 and 2016:
|
|
|
Year Ended December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Employee compensation |
|
$ |
1,839 |
|
|
$ |
2,628 |
|
|
Operating loss carryforwards |
|
|
2,894 |
|
|
|
1,462 |
|
|
Accrued litigation |
|
|
5,517 |
|
|
|
213 |
|
|
Accounts receivable |
|
|
966 |
|
|
|
542 |
|
|
Tax credits |
|
|
— |
|
|
|
178 |
|
|
Acquisition related costs |
|
|
1,255 |
|
|
|
1,891 |
|
|
Property, equipment and amortization |
|
|
2,377 |
|
|
|
— |
|
|
Other |
|
|
— |
|
|
|
363 |
|
|
Valuation allowances |
|
|
(1,638 |
) |
|
|
(623 |
) |
|
Total deferred tax assets |
|
$ |
13,210 |
|
|
$ |
6,654 |
|
|
Property, equipment and amortization |
|
|
— |
|
|
|
(209 |
) |
|
Goodwill and other intangible property |
|
|
(5,130 |
) |
|
|
(5,368 |
) |
|
Other |
|
|
(70 |
) |
|
|
(479 |
) |
|
Accounts receivable |
|
|
— |
|
|
|
— |
|
|
Total deferred tax liabilities |
|
|
(5,200 |
) |
|
|
(6,056 |
) |
|
Net deferred tax assets (liabilities) |
|
$ |
8,010 |
|
|
$ |
598 |
|
At December 31, 2017, the Company had $3.2 million in state net operating losses which expire between 2027 and 2037.
The Company’s valuation allowance of $1.6 million is related to state NOLs, which are limited due to apportionable income to certain jurisdictions.
The Company had no uncertain tax positions as of December 31, 2017 and 2016, respectively. Generally, for federal and state purposes, the Company's 2013 through 2016 tax years remain open for examination by tax authorities. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the IRS. The Internal Revenue Service is currently conducting a routine examination of the Company’s 2013 and 2014 tax returns. The results of such examination and impact on the Company’s results of operation are not known at this time. The Company has not been notified of any state income tax examinations.
There are no federal net operating loss carryforwards that were generated during tax periods ending as of or prior to December 31, 2017. Net operating losses generated during tax periods beginning after December 31, 2017 will have limitations but will carry-forward indefinitely. The Company is not subject to alternative minimum tax.
On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act”. This legislation creates significant changes in U.S. tax law, including a reduction in corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the current rate of 35% to 21% for tax periods beginning after December 31, 2017.
The Company is required to recognize the effect of the change from the tax law in the period of enactment by remeasuring its deferred tax assets and liabilities as well as reassessing the net realizability of its deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company revalued its deferred tax assets and liabilities at the enacted rate in effect during their scheduled reversals, the Federal rate of which is 21%. This revaluation of $29.5 million of net deferred tax assets resulted in an expense of $3.5 million to income tax expense in continuing operations and a corresponding reduction in the deferred tax assets.
Due to the timing of the enactment of the law, ongoing accounting guidance and interpretation is expected. The Company considers the accounting for the deferred tax re-measurements and other items to be preliminary due to the forthcoming guidance and its ongoing analysis of year-end tax positions. The Company expects to complete its analysis within the measurement period in accordance with SAB 118.