15.Income Taxes
Income tax (benefit) expense is composed of the following (in thousands):
|
|
|
Year Ended December 31, |
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|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(9,233 |
) |
|
$ |
(30,301 |
) |
|
$ |
52,578 |
|
|
State |
|
|
(8,864 |
) |
|
|
5,623 |
|
|
|
15,275 |
|
|
Total current (benefit) expense |
|
|
(18,097 |
) |
|
|
(24,678 |
) |
|
|
67,853 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(154,316 |
) |
|
|
31,122 |
|
|
|
(46,364 |
) |
|
State |
|
|
15,080 |
|
|
|
989 |
|
|
|
(11,752 |
) |
|
Total deferred (benefit) expense |
|
|
(139,236 |
) |
|
|
32,111 |
|
|
|
(58,116 |
) |
|
Income tax (benefit) expense |
|
$ |
(157,333 |
) |
|
$ |
7,433 |
|
|
$ |
9,737 |
|
The Company operates in only one federal jurisdiction, the United States. The following table presents a reconciliation of the income tax benefit computed at the statutory federal rate and the Company’s income tax (benefit) expense (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Income tax benefit—computed as 35% of pretax loss |
|
$ |
(52,102 |
) |
|
$ |
(82,286 |
) |
|
$ |
(85,235 |
) |
|
Effect of non-controlling interests and redeemable non-controlling interests |
|
|
70,219 |
|
|
|
91,183 |
|
|
|
93,221 |
|
|
Goodwill impairment |
|
|
— |
|
|
|
12,810 |
|
|
|
— |
|
|
Amortization of prepaid tax asset |
|
|
15,287 |
|
|
|
11,750 |
|
|
|
6,661 |
|
|
Effect of nondeductible expenses |
|
|
2,781 |
|
|
|
6,942 |
|
|
|
1,232 |
|
|
State and local income tax expenses (net of federal benefit) |
|
|
4,040 |
|
|
|
4,298 |
|
|
|
2,289 |
|
|
Effect of domestic production activities deduction |
|
|
— |
|
|
|
(473 |
) |
|
|
(4,699 |
) |
|
Effect of tax credits |
|
|
(11,849 |
) |
|
|
(36,328 |
) |
|
|
(4,106 |
) |
|
Effect of federal tax rate reduction from 35% to 21% |
|
|
(187,501 |
) |
|
|
— |
|
|
|
— |
|
|
Other |
|
|
1,792 |
|
|
|
(463 |
) |
|
|
374 |
|
|
Income tax (benefit) expense |
|
$ |
(157,333 |
) |
|
$ |
7,433 |
|
|
$ |
9,737 |
|
The TCJA was enacted on December 22, 2017. ASC 740 requires the effect of tax rate and law changes on deferred taxes to be recognized in the reporting period in which the legislation is enacted. This effect is required to be recorded as a component of the income tax provision.
The TCJA made significant changes to the U.S. tax code including reducing the U.S. federal corporate tax rate from 35% to 21% effective on January 1, 2018. The TCJA also includes new tax laws that will impact the Company’s taxable income beginning in 2018, which include, but are not limited to a provision that limits the amount of deductible interest expense, full expensing of acquired property, limitations on the utilization of NOL carryforwards, the repeal of the domestic production activity deduction, limitations on the deductibility of certain executive compensation, and the tax year of income inclusion.
The SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA 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 TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA 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 TCJA.
The Company has recorded a provisional net tax benefit of $187.5 million related to the remeasurement of its deferred tax balances to reflect the corporate rate reduction in the period ending December 31, 2017. Although the Company is able to make a reasonable estimate of the impact of the reduced corporate rate, it continues to analyze the temporary differences that existed on the date of enactment. The impact of the TCJA may differ from the Company’s estimates, possibly materially, due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the TCJA. The Company is also currently analyzing other previously mentioned provisions of the TCJA that come into effect for tax years starting after 2017 to determine if these items would impact the effective tax rate.
Deferred income taxes reflect the impact of temporary differences between assets and liabilities for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards and other tax credits. The differences are measured by applying currently enacted tax laws. The significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
|
|
|
December 31, |
|
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|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Accruals and reserves |
|
$ |
4,154 |
|
|
$ |
8,523 |
|
|
Stock-based compensation |
|
|
5,047 |
|
|
|
7,791 |
|
|
Tax credits |
|
|
43,071 |
|
|
|
1,744 |
|
|
Net operating losses |
|
|
5,847 |
|
|
|
— |
|
|
Depreciation and amortization |
|
|
2,160 |
|
|
|
— |
|
|
Other |
|
|
324 |
|
|
|
351 |
|
|
Gross deferred tax assets |
|
|
60,603 |
|
|
|
18,409 |
|
|
Valuation allowance |
|
|
(329 |
) |
|
|
(204 |
) |
|
Net deferred tax assets |
|
|
60,274 |
|
|
|
18,205 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Investment in solar funds |
|
|
(361,284 |
) |
|
|
(368,536 |
) |
|
Depreciation and amortization |
|
|
(37,121 |
) |
|
|
(38,116 |
) |
|
Interest rate swaps |
|
|
(3,458 |
) |
|
|
(5,732 |
) |
|
Accruals and reserves |
|
|
(793 |
) |
|
|
(1,039 |
) |
|
Gross deferred tax liabilities |
|
|
(402,656 |
) |
|
|
(413,423 |
) |
|
Net deferred tax liabilities |
|
$ |
(342,382 |
) |
|
$ |
(395,218 |
) |
The Company sells solar energy systems under long-term customer contracts to substantially all of the investment funds for income tax purposes. As the investment funds are consolidated by the Company, the gain on the sale of the solar energy systems is not recognized in the consolidated financial statements. However, this gain is recognized for tax reporting purposes. Since these transactions are intercompany sales for GAAP purposes, any tax expense incurred related to these intercompany sales is deferred and amortized over the estimated useful life of the underlying solar energy systems, which has been estimated to be 30 years. Accordingly, the Company has recorded a prepaid tax asset, net of $505.9 million and $419.5 million as of December 31, 2017 and 2016.
The future reversal of deferred tax liabilities is expected to produce a sufficient source of future taxable income of the necessary character and in the necessary periods and jurisdictions to support the realization of the deferred tax assets. As such, no valuation allowance is required except for as noted below.
The Company had state net operating loss carryforwards of approximately $95.5 million and $1.1 million (the “NOLs”), available to offset future state taxable income as of December 31, 2017 and 2016. The NOLs expire in varying amounts from 2029 through 2037 for state tax purposes if unused. As of December 31, 2017 and 2016, the Company recognized a valuation allowance of $0.3 million and $0.2 million for the existing state NOLs and other existing state tax attributes due to state-imposed limitations on their utilization.
The Company reported federal business tax credits, primarily composed of ITCs, of $12.5 million and $36.3 million for the years ended December 31, 2017 and 2016. The Company accounts for its federal business tax credits as a reduction of income tax expense in the year in which the credits arise. The Company reported AMT credits of $0.9 million and $0.8 million for the years ended December 31, 2017 and 2016. As of December 31, 2017 and 2016, the Company had $11.1 million and $33.2 million of federal income tax refunds receivable which were recorded in prepaid expenses and other current assets. As of December 31, 2017 and 2016, the Company had $9.7 million and $2.6 million of state income tax refunds receivable which were recorded in prepaid expenses and other current assets.
Uncertain Tax Positions
As of December 31, 2017 and 2016, the Company had no unrecognized tax benefits. There were no interest and penalties accrued for any uncertain tax positions as of December 31, 2017 and 2016. The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized benefits will increase or decrease within 12 months of the year ended December 31, 2017. The Company is subject to taxation and files income tax returns in the United States and various state and local jurisdictions. The U.S. and state jurisdictions in which the Company operates have statutes of limitations that generally range from three to four years. The Company’s federal, state and local income tax returns starting with the 2014 tax year are subject to audit. The Company’s 2013 income tax returns for two states are also subject to audit.