Income Taxes
We intend to elect to be taxed and qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2017. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pays taxes at regular corporate income tax rates to the extent that it annually distributes less than 100% of its taxable income. The Company intends to meet those requirements and as a result, we generally will not be subject to federal income tax except for the TRS operations.
The TRS operations (represented by the four golf course businesses) are able to engage in activities resulting in income that would not be qualifying income for a REIT. As a result, certain activities of the Company which occur within its TRS operations are subject to federal and state income taxes. Accordingly, the Company's tax provision and deferred tax analysis are primarily from the results of TRS activities.
New tax legislation, commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform Act”), was enacted on December 22, 2017, which significantly changes U.S. tax law by, among other things, a permanent reduction of the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment. Accordingly, we have recorded a reduction to our net deferred tax liability of $2.4 million, and a corresponding increase to income tax benefit during the period.
The composition of our income tax expense (benefit) for the period from October 6, 2017 to December 31, 2017 was as follows:
|
| | | | | | | | | | | |
(In thousands) | Current | | Deferred | | Total |
Federal | $ | — |
| | $ | (1,909 | ) | | $ | (1,909 | ) |
State | 11 |
| | (3 | ) | | 8 |
|
Income tax expense (benefit) | $ | 11 |
| | $ | (1,912 | ) | | $ | (1,901 | ) |
At December 31, 2017, the net effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were:
|
| | | |
(In thousands) | December 31, 2017 |
Deferred tax assets: | |
Federal net operating loss | $ | 55 |
|
Accruals, reserves and other | 24 |
|
Total deferred tax assets | 79 |
|
Deferred tax liabilities: | |
Land, buildings and equipment, net | (3,797 | ) |
Total deferred tax liabilities | (3,797 | ) |
Net deferred tax liability | $ | (3,718 | ) |
The following table reconciles our effective income tax rate to the historical federal statutory rate of 35%.
|
| | | | | | |
(Amounts in thousands) | Amount | | Percent |
Federal income tax expense at statutory rate | $ | 15,414 |
| | 35.0 | % |
REIT income not subject to federal income tax | (14,897 | ) | | (33.8 | ) |
State income taxes, net of federal benefits | 5 |
| | — |
|
Impact of Tax Reform on deferred tax liability | (2,423 | ) | | (5.5 | ) |
Income tax expense (benefit) | $ | (1,901 | ) | | (4.3 | )% |