Note 19. INCOME TAXES
As a limited partnership, we are not subject to federal and state income taxes, however our corporate subsidiaries are subject to income taxes. Income tax attributable to our taxable income, which may differ significantly from income for financial statement purposes, is assessed at the individual limited partner unit holder level. We are subject to a statutory requirement that non-qualifying income, as defined by the Internal Revenue Code, cannot exceed 10% of total gross income for the calendar year. If non-qualifying income exceeds this statutory limit, we would be taxed as a corporation. The non-qualifying income did not exceed the statutory limit in any period presented. The reported balance of our net liabilities was greater than the related tax basis of net liabilities by $3.4 million at December 31, 2017 and $9.1 million at December 31, 2016.
Certain activities that generate non-qualifying income are conducted through LGWS. LGWS is a tax paying corporate subsidiary of ours that is subject to federal and state income taxes. Current and deferred income taxes are recognized on the earnings of LGWS. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates.
The Tax Cuts and Jobs Act made changes that affect us including (1) reducing the federal corporate income tax rate to 21 percent beginning January 1, 2018, and (2) providing for the immediate expensing for tax purposes for certain qualified depreciable assets placed in service after September 27, 2017. As a result of the rate change, we recognized a net tax benefit of $13.2 million due to the reduction of our net deferred tax liability.
The Tax cuts and Jobs Act also includes certain limitations on deductions effective for the tax year 2018 and forward, related to deductions for interest expense, employee compensation, and meals and entertainment. These limitations are being evaluated and may impact us. We anticipate that U.S. regulatory agencies and state governments will issue further guidance regarding the changes in deductibility which we will incorporate in our future estimates.
Components of income tax expense related to net income were as follows (in thousands):
|
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
210 |
|
|
$ |
309 |
|
|
$ |
1,630 |
|
|
U.S. state |
|
|
406 |
|
|
|
(75 |
) |
|
|
944 |
|
|
Total current |
|
|
616 |
|
|
|
234 |
|
|
|
2,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
|
(16,064 |
) |
|
|
(1,369 |
) |
|
|
(4,279 |
) |
|
U.S. state |
|
|
(2,789 |
) |
|
|
682 |
|
|
|
(1,837 |
) |
|
Total deferred |
|
|
(18,853 |
) |
|
|
(687 |
) |
|
|
(6,116 |
) |
|
Income tax benefit |
|
$ |
(18,237 |
) |
|
$ |
(453 |
) |
|
$ |
(3,542 |
) |
The difference between the actual income tax provision and income taxes computed by applying the U.S. federal statutory rate to earnings (losses) before income taxes is attributable to the following (in thousands):
|
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Consolidated income from continuing operations before income taxes - all domestic |
|
$ |
4,939 |
|
|
$ |
10,262 |
|
|
$ |
7,920 |
|
|
Income from continuing operations before income taxes of non-taxable entities |
|
|
(7,769 |
) |
|
|
(13,408 |
) |
|
|
(18,409 |
) |
|
Loss from continuing operations before income taxes of corporate entities |
|
|
(2,830 |
) |
|
|
(3,146 |
) |
|
|
(10,489 |
) |
|
Federal income tax benefit at statutory rate |
|
|
(962 |
) |
|
|
(1,070 |
) |
|
|
(3,566 |
) |
|
Increase (decrease) due to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nondeductible expenses |
|
|
384 |
|
|
|
(37 |
) |
|
|
198 |
|
|
Tax on gains not recognized for book income |
|
|
112 |
|
|
|
1,104 |
|
|
|
— |
|
|
Change in valuation allowance |
|
|
(3,713 |
) |
|
|
67 |
|
|
|
(247 |
) |
|
State income taxes, net of federal income tax benefit |
|
|
(878 |
) |
|
|
40 |
|
|
|
(343 |
) |
|
Non-taxable refund |
|
|
— |
|
|
|
(589 |
) |
|
|
— |
|
|
Rate change |
|
|
(13,180 |
) |
|
|
— |
|
|
|
— |
|
|
Other |
|
|
— |
|
|
|
32 |
|
|
|
416 |
|
|
Total income tax benefit |
|
$ |
(18,237 |
) |
|
$ |
(453 |
) |
|
$ |
(3,542 |
) |
The tax effects of significant temporary differences representing deferred income tax assets and liabilities were as follows (in thousands):
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
|
Deferred rent expense |
|
$ |
1,298 |
|
|
$ |
1,244 |
|
|
Above market lease liability |
|
|
275 |
|
|
|
895 |
|
|
Capital lease and sale leaseback financing obligations |
|
|
14,677 |
|
|
|
22,557 |
|
|
Asset retirement obligations |
|
|
7,250 |
|
|
|
9,445 |
|
|
Other assets |
|
|
794 |
|
|
|
1,625 |
|
|
Total deferred income tax assets |
|
|
24,294 |
|
|
|
35,766 |
|
|
Less: Valuation allowance |
|
|
— |
|
|
|
(5,495 |
) |
|
Net deferred income tax assets |
|
|
24,294 |
|
|
|
30,271 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
|
Deferred rent income |
|
|
1,307 |
|
|
|
982 |
|
|
Property and equipment |
|
|
45,549 |
|
|
|
67,523 |
|
|
Intangibles |
|
|
679 |
|
|
|
3,832 |
|
|
Other assets |
|
|
828 |
|
|
|
857 |
|
|
Total deferred income tax liabilities |
|
|
48,363 |
|
|
|
73,194 |
|
|
Net deferred income tax liabilities |
|
$ |
24,069 |
|
|
$ |
42,923 |
|
A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. All available evidence, both positive and negative, must be considered in determining the need for a valuation allowance. The valuation allowance at December 31, 2016 related primarily to the uncertainty of the availability of future profits to realize the tax benefit of the existing deductible temporary differences. Positive evidence considered in our 2017 assessment included: 1) reversals of taxable temporary differences in future tax years; 2) an observable history of reporting taxable income; 3) projections of future taxable income; 4) feasible and prudent tax planning strategies; and 5) the impact of recently enacted tax reform. Under the Tax Cuts and Jobs Act, among other provisions, any net operating losses generated after 2017 can be carried forward indefinitely. This change, in part, allows for the consideration as a future source of taxable income, reversals of deferred tax liabilities related to indefinite lived liabilities. This income is sufficient to offset the indefinite lived asset generated by the reversals and provides additional positive evidence of future income allowing for the release of the valuation allowance. The release resulted in a tax benefit of $3.7 million.
Changes in the valuation allowance account consisted of the following (in thousands):
|
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Balance at beginning of period |
|
$ |
5,495 |
|
|
$ |
5,428 |
|
|
$ |
5,675 |
|
|
Charged to costs and expenses (a) |
|
|
(5,495 |
) |
|
|
67 |
|
|
|
(247 |
) |
|
Balance at end of period |
|
$ |
— |
|
|
$ |
5,495 |
|
|
$ |
5,428 |
|
|
(a) |
Of the 2017 amount charged to costs and expenses, $1.8 million primarily relates to the reduction in the tax rate used to compute the valuation allowance as a result of the Tax Cuts and Jobs Act. |
We provide tax reserves for federal, state and local and uncertain tax positions. The development of these tax positions requires subjective, critical estimates and judgments about tax matters, potential outcomes and timing. Although the outcome of potential tax examinations is uncertain, in management’s opinion, adequate provisions for income taxes have been made for potential liabilities resulting from these reviews. If actual outcomes differ materially from these estimates, they could have a material impact on our financial condition and results of operations. Differences between actual results and assumptions, or changes in assumptions in future periods, are recorded in the period they become known. To the extent additional information becomes available prior to resolution, such accruals are adjusted to reflect probable outcomes.
As of December 31, 2017 and 2016, we did not have unrecognized tax benefits. Our practice is to recognize interest and penalties related to income tax matters in income tax expense. We had no material interest and penalties for the years ended December 31, 2017, 2016 and 2015.
We file income tax returns with the U.S. federal government as well as the many state jurisdictions in which we operate. The statute remains open for tax years 2014 through 2017; therefore, these years remain subject to examination by federal, state and local jurisdiction authorities.