|
6. |
Income Taxes |
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with our taxable year beginning January 1, 1999. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our taxable income to our stockholders, excluding net capital gain. As a REIT, generally we will not be subject to federal and state corporate income tax on that portion of our taxable income that currently is distributed to our stockholders. If we fail to qualify for taxation as a REIT in any taxable year, we will be subject to federal and state corporate income taxes at regular corporate rates (including any applicable corporate alternative minimum tax, which was repealed effective January 1, 2018) and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state, local and foreign taxes on our income and property, and to federal and state income and excise taxes on our undistributed taxable income.
H. R. 1 (Tax Cuts and Jobs Act) was enacted on December 22, 2017. Accordingly, the domestic deferred tax assets have been remeasured using a U.S. federal income tax rate of 21% that is effective beginning with calendar year 2018. The impact of this remeasurement is a decrease to the domestic deferred tax assets and an increase to the deferred income tax provision in 2017 of approximately $11 million.
We have recorded a 100% valuation allowance of approximately $27 million against the deferred tax asset related to the net operating loss carryovers as of December 31, 2017 with respect to our hotel in Mexico. During 2016, we reversed the $3 million valuation allowance previously recorded against the deferred tax asset related to the net operating loss carryovers of our hotels in Canada. The net increase in valuation allowance for the year ending December 31, 2017 is approximately $5 million. The net decrease in valuation allowance for the year ending December 31, 2016 is approximately $1 million. The primary components of our net deferred tax assets are as follows (in millions):
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|
As of December 31, |
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|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
Net operating loss and capital loss carryovers |
|
$ |
34 |
|
|
$ |
43 |
|
|
Alternative minimum tax and investment tax credits |
|
|
— |
|
|
|
8 |
|
|
Property and equipment |
|
|
3 |
|
|
|
4 |
|
|
Investments in domestic affiliates |
|
|
— |
|
|
|
2 |
|
|
Deferred revenue and expenses |
|
|
27 |
|
|
|
42 |
|
|
Foreign exchange net losses (AOCI) |
|
|
12 |
|
|
|
12 |
|
|
Other |
|
|
— |
|
|
|
2 |
|
|
Total gross deferred tax assets |
|
|
76 |
|
|
|
113 |
|
|
Less: Valuation allowance |
|
|
(27 |
) |
|
|
(22 |
) |
|
Total deferred tax assets, net of valuation allowance |
|
$ |
49 |
|
|
$ |
91 |
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
— |
|
|
|
(11 |
) |
|
Investments in domestic and foreign affiliates |
|
|
(8 |
) |
|
|
(7 |
) |
|
Other |
|
|
— |
|
|
|
(2 |
) |
|
Total gross deferred tax liabilities |
|
|
(8 |
) |
|
|
(20 |
) |
|
Net deferred tax assets |
|
$ |
41 |
|
|
$ |
71 |
|
At December 31, 2017, we have aggregate gross foreign net operating loss and capital loss carryovers of approximately $116 million. We have deferred tax assets related to these foreign loss carryovers of approximately $34 million, with a valuation allowance of approximately $27 million. Our foreign net operating loss carryovers expire through 2037, and our foreign capital loss carryovers have no expiration period. We believe that it is more likely than not that the results of future operations will generate sufficient taxable income in order to realize our total deferred tax assets, net of a valuation allowance of $27 million, of $49 million.
Our U.S. and foreign income from continuing operations before income taxes was as follows (in millions):
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|
Year ended December 31, |
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|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. income |
$ |
593 |
|
|
$ |
763 |
|
|
$ |
530 |
|
|
Foreign income |
|
58 |
|
|
|
48 |
|
|
|
44 |
|
|
Total |
$ |
651 |
|
|
$ |
811 |
|
|
$ |
574 |
|
The provision for income taxes from continuing operations consists of (in millions):
|
|
|
|
Year ended December 31, |
|
|||||||||
|
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current |
—Federal |
|
$ |
17 |
|
|
$ |
— |
|
|
$ |
2 |
|
|
|
—State |
|
|
6 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
—Foreign |
|
|
19 |
|
|
|
12 |
|
|
|
3 |
|
|
|
|
|
|
42 |
|
|
|
13 |
|
|
|
4 |
|
|
Deferred |
—Federal |
|
|
32 |
|
|
|
24 |
|
|
|
2 |
|
|
|
—State |
|
|
4 |
|
|
|
6 |
|
|
|
— |
|
|
|
—Foreign |
|
|
2 |
|
|
|
(3 |
) |
|
|
3 |
|
|
|
|
|
|
38 |
|
|
|
27 |
|
|
|
5 |
|
|
Income tax provision – continuing operations |
|
$ |
80 |
|
|
$ |
40 |
|
|
$ |
9 |
|
|
The differences between the income tax provision calculated at the statutory U.S. federal income tax rate of 35% (21% beginning with calendar year 2018) and the actual income tax provision recorded for continuing operations are as follows (in millions):
|
|
|
Year ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Statutory federal income tax provision |
|
$ |
228 |
|
|
$ |
284 |
|
|
$ |
204 |
|
|
Adjustment for nontaxable income of Host Inc. |
|
|
(190 |
) |
|
|
(260 |
) |
|
|
(203 |
) |
|
State income tax provision, net |
|
|
10 |
|
|
|
7 |
|
|
|
1 |
|
|
Provision for uncertain tax positions |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
Remeasurement of domestic net deferred tax assets |
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
Foreign income tax provision |
|
|
21 |
|
|
|
9 |
|
|
|
6 |
|
|
Income tax provision |
|
$ |
80 |
|
|
$ |
40 |
|
|
$ |
9 |
|
Cash paid for income taxes, net of refunds received, was $40 million, $15 million, and $9 million in 2017, 2016, and 2015, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|
|
|
2017 |
|
|
2016 |
|
||
|
Balance at January 1 |
|
$ |
11 |
|
|
$ |
11 |
|
|
Balance at December 31 |
|
$ |
11 |
|
|
$ |
11 |
|
All of such uncertain tax position amounts, if recognized, would impact our reconciliation between the income tax provision calculated at the statutory U.S. federal income tax rate of 35% (21% beginning with calendar year 2018) and the actual income tax provision recorded each year.
As of December 31, 2017, the tax years that remain subject to examination by major tax jurisdictions generally include 2014-2017. There were no material interest or penalties recorded for the years ended December 31, 2017, 2016, and 2015.