INCOME TAXES
The provision for (benefit from) income taxes consist of the following:
|
| | | | | | | | | | | |
| For the Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (Amounts in thousands) |
Current | |
| | |
| | |
|
Federal | $ | 581 |
| | $ | 272 |
| | $ | 1,546 |
|
State and local | 951 |
| | 1,058 |
| | 1,373 |
|
Total current provision | 1,532 |
| | 1,330 |
| | 2,919 |
|
| | | | | |
Deferred | |
| | |
| | |
|
Federal | 446 |
| | 158 |
| | (454 | ) |
State and local | (22 | ) | | (425 | ) | | (450 | ) |
Total deferred provision | 424 |
| | (267 | ) | | (904 | ) |
Provision for Income Taxes | $ | 1,956 |
| | $ | 1,063 |
| | $ | 2,015 |
|
Deferred income taxes reflect the net effect of temporary differences between the tax basis of an asset or liability and its reported amount on the Company’s consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years. The significant components of the Company's deferred tax assets and liabilities included on its consolidated balance sheet are as follows:
|
| | | | | | | |
| As of December 31, |
| 2017 | | 2016 |
| (Amounts in thousands) |
Deferred tax assets | | | |
Tax goodwill | $ | 557 |
| | $ | 605 |
|
Basis difference in partnership interest | 851 |
| | 417 |
|
Unrealized losses | 378 |
| | 44 |
|
Stock-based compensation | 173 |
| | 216 |
|
New York City unincorporated business tax credit carryforward | 700 |
| | 512 |
|
Other items | 118 |
| | 207 |
|
Total deferred tax assets | 2,777 |
| | 2,001 |
|
Deferred tax liabilities | | | |
Accrued fee income | 89 |
| | 147 |
|
Other items | 3 |
| | 55 |
|
Total deferred tax liabilities | 92 |
| | 202 |
|
Net deferred tax assets | $ | 2,685 |
| | $ | 1,799 |
|
The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate as limited liability companies, which are not subject to federal or state income tax. Accordingly, a portion of the Company’s earnings attributable to non-controlling interests are not subject to corporate level taxes. However, a portion of the Company's subsidiaries' income is subject to New York City’s unincorporated business tax. For the years ended December 31, 2017, 2016 and 2015, the Company was only subject to federal, state and city corporate income taxes on its pre-tax income attributable to Medley Management Inc.
A reconciliation of the federal statutory tax rate to the effective tax rates for the years ended December 31, 2017, 2016 and 2015 are as follow:
|
| | | | | | | | |
| For the Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Federal statutory rate | 34.0 | % | | 34.0 | % | | 34.0 | % |
Income allocated to non-controlling interests | (29.8 | )% | | (28.9 | )% |
| (26.8 | )% |
State and local corporate income taxes | 0.8 | % | | 1.2 | % | | 1.0 | % |
Partnership unincorporated business tax | 2.5 | % | | 4.2 | % | | 1.7 | % |
Permanent differences | (0.6 | )% | | — | % | | (2.9 | )% |
Impact of U.S. tax reform (Tax Cuts and Jobs Act) | 1.4 | % | | — | % | | — | % |
Non-deductible stock-based compensation | 2.0 | % | | — | % | | — | % |
Other | (0.1 | )% | | (0.8 | )% | | 1.9 | % |
Effective tax rate | 10.2 | % | | 9.7 | % | | 8.9 | % |
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including: a federal corporate rate reduction from 34% to 21%; limitations on the deductibility of interest expense and executive compensation; and the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system. Changes under the Tax Act are effective for the Company as of January 1, 2018.
ASC 740, Income Taxes, requires the Company to remeasure its deferred tax assets and liabilities as of the date of enactment, with the resulting tax impact accounted for in the reporting period of enactment. Based on the reduction of the corporate income tax rate, the Company re-measured its deferred tax assets and liabilities based on the rates at which they are expected to to be utilized in the future. The impact of this change resulted in a $0.3 million decrease in the Company's deferred tax asset balance and corresponding increase in the provision for income taxes for the year ended December 31, 2017.
Interest expense and penalties related to income tax matters are recognized as a component of the provision for income taxes and were not significant during the years ended December 31, 2017, 2016 and 2015. As of and during the years ended December 31, 2017, 2016 and 2015, there were no uncertain tax positions taken that were not more likely than not to be sustained. The primary jurisdictions in which the Company operates in are the United States, New York, New York City, and California. The Company is no longer subject to tax examinations by taxing authorities for tax years prior to 2014.