INCOME TAXES
The current and deferred components of the income tax provision (benefit) included in the Consolidated Statements of Operations are as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | 1,551 |
| | $ | 355 |
| | $ | 86 |
|
State and local | 145 |
| | 112 |
| | 45 |
|
Foreign | 76 |
| | (176 | ) | | 222 |
|
Total current provision | 1,772 |
| | 291 |
| | 353 |
|
| | | | | |
Deferred: | | | | | |
Federal | 215 |
| | (50 | ) | | (79 | ) |
State and local | 5 |
| | 6 |
| | — |
|
Foreign | (38 | ) | | 21 |
| | 312 |
|
Total deferred provision | 182 |
| | (23 | ) | | 233 |
|
| | | | | |
Total provision for income taxes | $ | 1,954 |
| | $ | 268 |
| | $ | 586 |
|
The Company is taxed as a flow-through entity for U.S. income tax purposes and its taxable income or loss generated is the responsibility of its owners. Taxable income or loss generated by the Company’s corporate subsidiaries is subject to U.S. federal, state and foreign corporate income tax in locations where they conduct business.
The difference between the Company’s reported provision for income taxes and the U.S. federal statutory rate of 35% is as follows:
|
| | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
U.S. federal tax at statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
Income not subject to tax | 98.2 | % | | 7.9 | % | | 25.2 | % |
State and local taxes | (0.5 | )% | | (0.2 | )% | | (0.2 | )% |
Foreign taxes | (0.2 | )% | | 0.9 | % | | (1.9 | )% |
Branch Profit Tax | (2.6 | )% | | (0.3 | )% | | (0.1 | )% |
Change in Tax Rates | (6.9 | )% | | — | % | | — | % |
Other | 1.0 | % | | (0.4 | )% | | (0.1 | )% |
Change in valuation allowance | (133.2 | )% | | (43.6 | )% | | (60.0 | )% |
Provision for income taxes | (9.2 | )% | | (0.7 | )% | | (2.1 | )% |
Significant components of our deferred tax assets and liabilities are as follows:
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 46,564 |
| | $ | 42,337 |
|
Accrued expenses | 1,684 |
| | 1,642 |
|
Interest expense | 9,727 |
| | 8,334 |
|
Other | 202 |
| | 1,404 |
|
Total deferred tax assets | 58,177 |
| | 53,717 |
|
Less valuation allowance | (45,624 | ) | | (42,270 | ) |
Net deferred tax assets | 12,553 |
| | 11,447 |
|
Deferred tax liabilities: | | | |
Fixed assets | 13,104 |
| | 11,816 |
|
Net deferred tax liabilities | $ | (551 | ) | | $ | (369 | ) |
Current and deferred tax assets and liabilities are reported net in other assets or other liabilities in the Consolidated Balance Sheet. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. The Company has analyzed its deferred tax assets and has determined, based on the weight of available evidence, that it is more likely than not that a significant portion will not be realized. Accordingly, valuation allowances have been recognized as of December 31, 2017 and December 31, 2016 of $45,624 and $42,270, respectively, related to certain deductible temporary differences and net operating loss carryforwards.
A summary of the changes in the valuation allowance is as follows:
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Valuation allowance at beginning of period | $ | 42,270 |
| | $ | 24,786 |
|
Increase due to current year losses | 27,549 |
| | 17,484 |
|
Decrease due to change in tax rates | (24,195 | ) | | — |
|
Valuation allowance at end of period | $ | 45,624 |
| | $ | 42,270 |
|
As of December 31, 2017 and 2016, certain corporate subsidiaries of the Company had U.S. federal net operating loss carryforwards of approximately $184,177 and $106,838, respectively, and $121,574 and $104,263, respectively, of various state and local net operating loss carryforwards that are available to offset future taxable income, if and when it arises. These net operating loss carryforwards begin to expire in the year 2034. As of December 31, 2017 and 2016, the Company also had net operating loss carryforwards for Canadian federal and provincial income taxes of $6,875 and $7,893, respectively, which will begin to expire in the year 2034. As of December 31, 2017 and 2016, the Company also had net operating loss carryforwards for Irish income tax purposes of $33,209 and $18,453, which can be carried forward indefinitely against future business income. The Company also has net operating losses for Malaysian income tax purposes of $968 as of December 31, 2017 which can be carried forward indefinitely. The utilization of the net operating loss carryforwards to reduce future income taxes will depend on the corporate subsidiaries’ ability to generate sufficient taxable income prior to the expiration of the carryforward period. In addition, the maximum annual use of net operating loss carryforwards may be limited in certain situations after changes in stock ownership occur.
The TCJA significantly revises the U.S. corporate income tax regime by, among other things, lowering corporate income tax rates. The Company has accounted for the effects of the TCJA for the year ended December 31, 2017 which relates to the re-measurement of deferred tax assets and liabilities due to the reduction in the corporate income tax rate. Due to the significant portion of the Company’s income that is not subject to entity level tax and the presence of a significant valuation allowance, the effects of the TCJA have had a minimal impact on the income tax provision for the year ended December 31, 2017.
As of and for the period ended December 31, 2017, the Company had not established a liability for uncertain tax positions as no such positions existed. In general, the Company’s tax returns and the tax returns of its corporate subsidiaries are subject to U.S. federal, state, local and foreign income tax examinations by tax authorities. Generally, the Company is not subject to examination by taxing authorities for tax years prior to 2014. The Company does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within 12 months of the reporting date.