9. Income Taxes
The income tax expense (benefit) consisted of the following components for the years ended December 31 (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current tax (benefit) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(1,355 |
) |
|
$ |
545 |
|
|
$ |
488 |
|
|
State |
|
|
304 |
|
|
|
760 |
|
|
|
692 |
|
|
|
|
|
(1,051 |
) |
|
|
1,305 |
|
|
|
1,180 |
|
|
Deferred tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
4,140 |
|
|
|
9,844 |
|
|
|
9,635 |
|
|
State |
|
|
311 |
|
|
|
1,188 |
|
|
|
1,357 |
|
|
|
|
|
4,451 |
|
|
|
11,032 |
|
|
|
10,992 |
|
|
Income tax expense |
|
$ |
3,400 |
|
|
$ |
12,337 |
|
|
$ |
12,172 |
|
The income tax expense (benefit) differs from the amount computed by applying the statutory federal income tax rate of 35% to income (loss) before income taxes. The sources and tax effects of the differences were as follows, for the years ended December 31 (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Income tax expense at 35% statutory federal rate |
|
$ |
3,162 |
|
|
$ |
11,131 |
|
|
$ |
10,595 |
|
|
State and local taxes, net of federal benefit |
|
|
410 |
|
|
|
1,265 |
|
|
|
1,154 |
|
|
Impact of federal tax rate reduction on deferred taxes |
|
|
1,220 |
|
|
|
- |
|
|
|
- |
|
|
Impact of federal tax rate reduction on uncertain tax positions |
|
|
(1,471 |
) |
|
|
- |
|
|
|
- |
|
|
Other |
|
|
79 |
|
|
|
(59 |
) |
|
|
423 |
|
|
Income tax expense (benefit) |
|
$ |
3,400 |
|
|
$ |
12,337 |
|
|
$ |
12,172 |
|
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code of 1986, as amended (the “Code”). The Act reduces the federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. Although the federal corporate income tax rate reduction is only effective for tax periods beginning after December 31, 2017, ASC 740 requires the Company to remeasure the existing net deferred tax asset in the period of enactment. The Act also provides for immediate expensing of 100% of the costs of qualified property that are incurred and placed in service during the period from September 27, 2017 to December 31, 2022. Beginning January 1, 2023, the immediate expensing provision is phased down by 20% per year until it is completely phased out as of January 1, 2027. Additionally, effective January 1, 2018, the Act imposes possible limitations on the deductibility of interest expense. As a result of this provision of the Act, the Company’s deduction for interest expense could be limited in future years. The effects of other provisions of the Act are not expected to have a material impact on the Company’s financial statements.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that begins in the reporting period that includes the Act’s enactment date and ends when an entity has obtained, prepared and analyzed the information that was needed in order to complete the accounting requirements under ASC 740, however in no circumstance should the measurement period extend beyond one year from the enactment date. In accordance with SAB 118, a company must reflect in its financial statements the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. SAB 118 provides that 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.
In accordance with SAB 118, the Company has recorded a provisional estimated income tax expense of $1.2 million for the year ended December 31, 2017 related to the remeasurement of the Company’s net deferred tax asset. As a result of the adoption of the Act, the Company remeasured the net deferred tax asset at the reduced federal corporate income tax rate. The remeasurement of the net deferred tax asset reflected in the financial statements is a provisional estimate as we are still analyzing the impact of certain provisions of the Act and refining our calculations which could impact the remeasurement of the net deferred tax asset. The Company will recognize any change to the provisional estimates as it refines the accounting for the impact of the Act. The Company expects to complete its analysis of the provisional item during the second half of 2018. Additionally, the Company recorded an income tax benefit of $1.5 million for the year ended December 31, 2017 related to the remeasurement of its uncertain tax positions at the reduced federal corporate income tax rate. The Company considers the accounting for the remeasurement of its uncertain tax positions at the reduced federal corporate income tax rate as complete.
The components of the net deferred tax asset were as follows, as of December 31 (in thousands):
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
11,726 |
|
|
$ |
21,456 |
|
|
Rent |
|
|
601 |
|
|
|
1,035 |
|
|
Other |
|
|
2,621 |
|
|
|
2,468 |
|
|
Total deferred tax assets |
|
|
14,948 |
|
|
|
24,959 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
(2,141 |
) |
|
|
(3,511 |
) |
|
Goodwill |
|
|
(4,300 |
) |
|
|
(5,648 |
) |
|
Other intangible assets |
|
|
(901 |
) |
|
|
(1,601 |
) |
|
FCC licenses |
|
|
(6,098 |
) |
|
|
(8,240 |
) |
|
Total deferred tax liabilities |
|
|
(13,440 |
) |
|
|
(19,000 |
) |
|
Net deferred tax assets |
|
$ |
1,508 |
|
|
$ |
5,959 |
|
As of December 31, 2017, the Company’s reserve for uncertain tax positions totaled approximately $2.2 million. For the years ended December 31, 2017, 2016 and 2015 there were $2.2 million, $3.7 million and $3.7 million of gross unrecognized tax benefits, respectively, that would reduce the effective tax rate if the underlying tax positions were sustained or settled favorably.
A reconciliation of the beginning and ending balances of the gross liability for uncertain tax positions is as follows (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Uncertain tax position liability at the beginning of the year |
|
$ |
3,677 |
|
|
$ |
3,677 |
|
|
$ |
3,677 |
|
|
Decreases related to tax positions taken during prior periods |
|
|
(1,471 |
) |
|
|
- |
|
|
|
- |
|
|
Uncertain tax position liability at the end of the year |
|
$ |
2,206 |
|
|
$ |
3,677 |
|
|
$ |
3,677 |
|
While the Company does not anticipate any significant changes to the amount of liabilities for gross unrecognized tax benefits within the next twelve months, there can be no assurance that the outcomes from any tax examinations will not have a significant impact on the amount of such liabilities, which could have an impact on the operating results or financial position of the Company.
Interest expense and penalties related to the Company’s uncertain tax positions would be reflected as a component of income tax expense in the Company’s Statements of Operations. For the years ended December 31, 2017, 2016 and 2015, the Company did not accrue interest on the unrecognized tax benefits as an unfavorable outcome upon examination would not result in a cash outlay but would reduce NOLs.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is subject to U.S. federal tax examinations for years after 2013. Additionally, any NOLs that were generated in prior years and utilized in the current or future years may also be subject to examination by the Internal Revenue Service. State jurisdictions that remain subject to examination are not considered significant.
As of December 31, 2017, the Company has federal NOLs available of $53.8 million and post-apportionment state NOLs available of $5.7 million which are available to reduce future taxable income if utilized before their expiration. The federal NOLs expire at various dates through 2033 if not utilized. Utilization of NOLs in the future may be limited if changes in the Company’s ownership occur.