Income Taxes
We are organized in conformity with the requirements for qualification and taxation as a REIT under the Code and, accordingly, we have not provided for U.S. federal income tax on our REIT taxable income that we distribute to our stockholders. We have elected to treat our subsidiaries that participate in certain non-REIT qualifying activities, and our foreign subsidiaries, as taxable REIT subsidiaries (“TRSs”). As such, we have provided for their federal, state and foreign income taxes.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act amends the Internal Revenue Code of 1986, as amended, (the “Code”) to reduce tax rates and modify policies, credits and deductions. The Tax Act reduces the corporate federal tax rate from a maximum of 35% to a flat 21% rate and transitions from a worldwide tax system to a territorial tax system including a one-time deemed repatriation on corporate earnings held offshore. The Tax Act also adds many new provisions including changes to bonus depreciation, the deduction for executive compensation and interest expense. From an international tax perspective, a tax on global intangible low-taxed income (“GILTI”) and a base erosion anti-abuse tax (“BEAT”) were added. While most of the provisions will not be effective until 2018, two items that are effective for 2017 are the adjustments to our deferred tax assets and liabilities based on the above reduction in the tax rate and the one-time taxable income inclusion of our post-1986 unremitted foreign earnings. The effects of these two items are reported below.
Cash paid for income taxes was $6.8 million in 2017 and $1.2 million in 2016 and $5.8 million in 2015.
The U.S. and foreign components of Income (loss) before provision for income taxes and equity in earnings of investee companies were as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2017 | | 2016 | | 2015 |
United States | | $ | 139.2 |
| | $ | 100.9 |
| | $ | 83.3 |
|
Foreign | | (14.1 | ) | | (9.9 | ) | | (112.1 | ) |
Income (loss) before provision for income taxes and equity in earnings of investee companies | | $ | 125.1 |
| | $ | 91.0 |
| | $ | (28.8 | ) |
The following table reconciles Income (loss) before provision for income taxes and equity in earnings of investee companies to REIT taxable income.
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2017 | | 2016 | | 2015 |
Income (loss) before provision for income taxes and equity in earnings of investee companies | | $ | 125.1 |
| | $ | 91.0 |
| | $ | (28.8 | ) |
Net (income) loss of TRSs | | (2.4 | ) | | 5.4 |
| | 108.7 |
|
Income from REIT operations | | 122.7 |
| | 96.4 |
| | 79.9 |
|
Book depreciation in excess of tax depreciation | | 29.5 |
| | 50.8 |
| | 51.7 |
|
Book amortization in excess of tax amortization | | (1.8 | ) | | 12.2 |
| | 7.9 |
|
Tax dividend from foreign subsidiary(a) | | 5.6 |
| | 41.0 |
| | 39.0 |
|
Book/tax differences - stock-based compensation | | (2.2 | ) | | 4.2 |
| | (3.4 | ) |
Book/tax differences - deferred gain for tax | | (13.1 | ) | | (3.5 | ) | | (2.7 | ) |
Book/tax differences - capitalized costs | | 5.7 |
| | 6.0 |
| | 5.6 |
|
Book/tax differences - other | | (0.2 | ) | | 6.4 |
| | 3.1 |
|
REIT taxable income (estimated) | | $ | 146.2 |
| | $ | 213.5 |
| | $ | 181.1 |
|
| |
(a) | In 2017, the tax dividend from foreign subsidiary consists of a $12.6 million one-time deemed repatriation of foreign unremitted earnings under the Tax Act, net of a $7.0 million deduction for dividends received. |
The components of the Provision for income taxes are as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2017 | | 2016 | | 2015 |
Current: | | | | | | |
Federal | | $ | (6.9 | ) | | $ | (4.0 | ) | | $ | (0.3 | ) |
State and local | | (2.2 | ) | | (1.5 | ) | | (0.9 | ) |
Foreign | | 0.1 |
| | (1.7 | ) | | (5.9 | ) |
| | (9.0 | ) | | (7.2 | ) | | (7.1 | ) |
Deferred tax benefit (liability): | | | | | | |
Federal | | (2.2 | ) | | (0.7 | ) | | (0.5 | ) |
State and local | | (0.1 | ) | | (0.2 | ) | | — |
|
Foreign | | 7.2 |
| | 2.7 |
| | 2.2 |
|
| | 4.9 |
| | 1.8 |
| | 1.7 |
|
Provision for income taxes | | $ | (4.1 | ) | | $ | (5.4 | ) | | $ | (5.4 | ) |
Excluding the Loss on real estate assets held for sale of $103.6 million (see Note 11. Acquisitions and Dispositions: Dispositions to the Consolidated Financial Statements) in 2015, the effective income tax rate was 3.3% in 2017, 5.9% in 2016 and 7.2% in 2015.
The difference between income taxes expected at the U.S. federal statutory income tax rate of 35% and the Provision for income taxes is summarized as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2017 | | 2016 | | 2015 |
Benefit (provision) for income taxes on income (loss) at U.S. statutory rate | | $ | (43.8 | ) | | $ | (31.9 | ) | | $ | 10.1 |
|
Loss on real estate assets held for sale | | — |
| | — |
| | (36.3 | ) |
REIT dividends paid deduction | | 42.9 |
| | 33.8 |
| | 28.0 |
|
State and local taxes, net of federal tax benefit | | (1.6 | ) | | (1.6 | ) | | (1.8 | ) |
Effect of foreign operations | | 2.4 |
| | (2.4 | ) | | (7.3 | ) |
Resolution of prior year tax | | — |
| | (2.9 | ) | | 2.1 |
|
Effect of the Tax Act on net deferred tax assets(a) | | (2.1 | ) | | — |
| | — |
|
Gain on dispositions | | (0.9 | ) | | — |
| | — |
|
Other, net | | (1.0 | ) | | (0.4 | ) | | (0.2 | ) |
Provision for income taxes | | $ | (4.1 | ) | | $ | (5.4 | ) | | $ | (5.4 | ) |
| |
(a) | Impact on our net deferred tax assets resulting from the Tax Act’s reduction of corporate income tax rates from 35% to 21% for tax years beginning after December 31, 2017. |
The following table is a summary of the components of deferred income tax assets and liabilities.
|
| | | | | | | | |
| | As of December 31, |
(in millions) | | 2017 | | 2016 |
Deferred income tax assets: | | | | |
Provision for expenses and losses | | $ | 0.9 |
| | $ | 0.6 |
|
Postretirement and other employee benefits | | 3.8 |
| | 5.0 |
|
Tax credit and loss carryforwards | | 2.2 |
| | 1.1 |
|
Total deferred income tax assets | | 6.9 |
| | 6.7 |
|
| | | | |
Deferred income tax liabilities: | | | | |
Property, equipment and intangible assets | | (22.4 | ) | | (8.8 | ) |
Total deferred income tax liabilities | | (22.4 | ) | | (8.8 | ) |
| | | | |
Deferred income tax liabilities, net | | $ | (15.5 | ) | | $ | (2.1 | ) |
As of December 31, 2017, we had net operating loss carryforwards for Canadian jurisdictions of $8.3 million, which expire in various years from 2018 through 2037.
Our undistributed earnings of foreign subsidiaries not includable in our federal income tax returns that could be subject to additional income taxes if remitted was approximately $4.1 million as of December 31, 2017, and $25.0 million as of December 31, 2016. No provision was recorded for taxes that could result from the remittance of such undistributed earnings since we intend to declare dividends to our shareholders in an amount sufficient to offset such distributions and intend to reinvest the remainder outside of the U.S. indefinitely. The determination of the unrecognized U.S. federal deferred income tax liability for undistributed earnings is not practicable.
The following table sets forth the change in the reserve for uncertain tax positions, excluding related accrued interest and penalties.
|
| | | | |
(in millions) | | |
As of January 1, 2015 | | $ | 1.2 |
|
Additions for current year tax positions | | 0.2 |
|
Reductions for prior year tax positions | | (0.6 | ) |
As of December 31, 2015 | | 0.8 |
|
Additions for current year tax positions | | 0.1 |
|
Reductions for prior year tax positions | | (0.3 | ) |
As of December 31, 2016 | | 0.6 |
|
Additions for current year tax positions | | 0.2 |
|
Reductions for prior year tax positions | | (0.2 | ) |
As of December 31, 2017 | | $ | 0.6 |
|
The reserve for uncertain tax positions of $0.6 million as of December 31, 2017, includes $0.3 million which would affect our effective income tax rate if and when recognized in future years.
We recognize interest and penalty charges related to the reserve for uncertain tax positions as part of income tax expense. These charges were not material for any of the periods presented.
We are subject to taxation in the U.S. and various state, local and foreign jurisdictions. As of December 31, 2017, tax returns for 2016, 2015 and 2014 are open to examination by the tax authorities. As of December 31, 2017, we are no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2014.