Income Taxes
The Company elected on its U.S. federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT. The benefits of the intended REIT conversion on the Company's tax provision and effective income tax rate are reflected in the tables below. Deferred tax assets and liabilities are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years. As a result of the Tax Cuts and Job Act, the corporate tax rate was permanently lowered from the existing maximum rate of 35% to 21%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate, U.S. generally accepted accounting principles require companies to re-value their deferred tax assets and liabilities as of the date of the enactment, with resulting tax effects accounted for in the reported period of enactment. As such, the Company revalued its net deferred tax asset at December 31, 2017. This revaluation resulted in a reduction in the value of its net deferred tax asset of approximately $1.8 million, which was recorded as additional income tax expense in the Company’s consolidated statement of income for the year ended December 31, 2017.
The components of the Company's deferred tax assets and liabilities, related to its TRS, are as follows:
|
| | | | | | | |
Year ended December 31, | 2017 | | 2016 |
| (in thousands) |
Deferred tax assets: | |
| | |
|
Accrued expenses | $ | 1,597 |
| | $ | 1,655 |
|
Property and equipment | 4,823 |
| | 5,818 |
|
Net deferred tax assets | 6,420 |
| | 7,473 |
|
Deferred tax liabilities: | |
| | |
|
Property and equipment | (902 | ) | | (2,192 | ) |
Intangibles | (1,284 | ) | | (1,624 | ) |
Net deferred tax liabilities | (2,186 | ) | | (3,816 | ) |
Net: | $ | 4,234 |
| | $ | 3,657 |
|
The provision for income taxes charged to operations for years ended December 31, 2017, 2016 and 2015 was as follows:
|
| | | | | | | | | | | |
Year ended December 31, | 2017 |
| 2016 |
| 2015 |
| (in thousands) |
Current tax expense | |
|
| |
|
| |
|
Federal | $ | 7,039 |
| | $ | 6,004 |
| | $ | 4,945 |
|
State | 3,309 |
| | 3,076 |
| | 3,310 |
|
Total current | 10,348 |
| | 9,080 |
| | 8,255 |
|
Deferred tax (benefit) expense | |
|
| |
|
| |
|
Federal | (166 | ) | | (1,324 | ) | | (533 | ) |
State | (395 | ) | | (211 | ) | | (280 | ) |
Total deferred | (561 | ) | | (1,535 | ) | | (813 | ) |
Total provision | $ | 9,787 |
| | $ | 7,545 |
| | $ | 7,442 |
|
The following tables reconcile the statutory federal income tax rate to the actual effective income tax rate for the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | |
Year ended December 31, | 2017 |
| 2016 |
| 2015 |
Percent of pretax income | |
|
| |
|
| |
|
U.S. federal statutory income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State and local income taxes | 0.6 | % | | 0.7 | % | | 1.3 | % |
Federal tax rate change | 0.5 | % | | — | % | | — | % |
REIT conversion benefit | (33.6 | )% | | (33.2 | )% | | (31.3 | )% |
Other miscellaneous items | — | % | | — | % | | 0.5 | % |
| 2.5 | % | | 2.5 | % | | 5.5 | % |
|
| | | | | | | | | | | |
Year ended December 31, | 2017 | | 2016 | | 2015 |
| (in thousands) |
Amount based upon pretax income | |
| | |
| | |
|
U.S. federal statutory income tax | $ | 136,636 |
| | $ | 103,897 |
| | $ | 47,447 |
|
State and local income taxes | 2,284 |
| | 2,039 |
| | 1,702 |
|
Federal tax rate change | 1,818 |
| | — |
| | — |
|
REIT conversion benefit | (130,876 | ) | | (98,459 | ) | | (42,438 | ) |
Permanent differences | 49 |
| | 44 |
| | 61 |
|
Other miscellaneous items | (124 | ) | | 24 |
| | 670 |
|
| $ | 9,787 |
| | $ | 7,545 |
| | $ | 7,442 |
|
The Company is still subject to federal income tax examinations for its years ended December 31, 2014 and forward.