INCOME TAXES
All Company operations are domestic. The provision for income taxes consisted of the following (in thousands):
|
| | | | | | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
Current: | | | | | | |
Federal | | $ | 55,218 |
| | $ | 37,751 |
| | $ | 24,990 |
|
State | | 4,970 |
| | 3,452 |
| | 2,419 |
|
Current tax provision | | 60,188 |
| | 41,203 |
| | 27,409 |
|
Deferred: | | | | | | |
Federal | | (1,918 | ) | | (2,451 | ) | | 33 |
|
State | | (174 | ) | | (111 | ) | | 8 |
|
Deferred tax provision (benefit) | | (2,092 | ) | | (2,562 | ) | | 41 |
|
Total income tax provision | | $ | 58,096 |
| | $ | 38,641 |
| | $ | 27,450 |
|
Income taxes paid were $16.8 million, $42.4 million and $23.7 million for the years ended December 31, 2017, 2016 and 2015, respectively.
A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 35% to income before provision for income taxes for the years ended December 31, 2017, 2016 and 2015 (in thousands): |
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Tax at federal statutory rate | | $ | 60,008 |
| | 35.0 | % | | $ | 39,791 |
| | 35.0 | % | | $ | 28,098 |
| | 35.0 | % |
State income taxes (net of federal benefit) | | 3,060 |
| | 1.8 |
| | 2,143 |
| | 1.9 |
| | 1,568 |
| | 2.0 |
|
Domestic production activity deduction | | (5,461 | ) | | (3.2 | ) | | (3,727 | ) | | (3.3 | ) | | (2,462 | ) | | (3.1 | ) |
Non deductible expenses and other | | (657 | ) | | (0.4 | ) | | 435 |
| | 0.4 |
| | 237 |
| | 0.3 |
|
Change in tax rates - deferred taxes | | 1,146 |
| | 0.7 |
| | (1 | ) | | — |
| | 9 |
| | — |
|
Tax at effective rate | | $ | 58,096 |
| | 33.9 | % | | $ | 38,641 |
| | 34.0 | % | | $ | 27,450 |
| | 34.2 | % |
The components of net deferred tax assets and liabilities at December 31, 2017 and 2016, are as follows (in thousands): |
| | | | | | | | |
| | December 31 |
| | 2017 | | 2016 |
Deferred tax assets: | | | | |
Accruals and reserves | | $ | 2,756 |
| | $ | 2,422 |
|
Inventory | | 475 |
| | 532 |
|
Stock-based compensation | | 1,048 |
| | 392 |
|
Deferred rent and loan costs | | 38 |
| | 105 |
|
Total deferred tax assets | | 4,317 |
| | 3,451 |
|
Deferred tax liabilities: | | | | |
Discount on Convertible Notes | | (801 | ) | | (1,897 | ) |
Prepaids | | (1,035 | ) | | (911 | ) |
Tax depreciation in excess of book depreciation | | (177 | ) | | (396 | ) |
Goodwill and other assets amortized for tax | | (376 | ) | | (411 | ) |
Total deferred tax liabilities | | $ | (2,389 | ) | | $ | (3,615 | ) |
Total net deferred tax assets (liabilities) | | $ | 1,928 |
| | $ | (164 | ) |
The Company has not recorded any accruals related to uncertain tax positions as of December 31, 2017 and 2016, respectively. We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The statute of limitations with regards to our federal income tax filings is three years. The statute of limitations for our state tax jurisdictions is three to four years depending on the jurisdiction.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Act”), reducing the U.S. federal corporate income tax rate for tax years beginning after December 31, 2017, among other changes. Under ASC 740, Income Taxes (“ASC 740”), the effects of new legislation are recognized in the period that includes the date of enactment. As a result, our deferred taxes are now measured at the new corporate tax rate of 21%. The effect of this change impacts our effective tax rate. The estimated impact on 2017 was to reduce the value of our deferred tax assets by approximately $1.1 million and has been reflected in our effective tax rate reconciliation.The disclosed impact is our most reasonable estimate at this time based on our understanding of the Act as it applies to our business and may change as more information becomes available.
The SEC staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Act for which the accounting under ASC 740 is incomplete. To the extent that a company’s accounting for certain income tax effects of the Act 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 enactment of the Act.
As of December 31, 2017, we have completed the majority of our accounting for the tax effects of the Act. However, as there is some uncertainty around the grandfathering provisions related to performance-based executive compensation, we have estimated a provisional amount for deferred tax assets related to performance-based executive compensation. In addition, we also re-measured the applicable deferred tax assets and liabilities based on the rates at which they are expected to reverse. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.