BP Midstream Partners LP

Income Taxes

Prior to our IPO, the Predecessor was a part of BPA and was included in the income tax returns of BPA. Our tax provision prior to the IPO was prepared on a separate return basis, as if the Predecessor was a separate group of companies under common ownership. Our operations were treated as if they were filing on a consolidated basis for U.S. federal tax purposes. Income taxes paid during the Predecessor periods were not reflected in a supplemental disclosure on the consolidated statements of cash flows as the Predecessor, which was derived from the assets within BPA, did not historically remit federal or state tax payments on a standalone basis.

BP Midstream Partners LP is not a taxable entity for U.S. federal and state income tax purposes. Taxes on our net income are generally borne by our partners through the allocation of taxable income. The financial statements, therefore, do not include a provision for income tax after the IPO.

The following reflects the components of income tax expense for the period from January 1, 2017 through October 29, 2017, and the years ended December 31, 2016 and 2015:



	January 1, 2017 - October 29, 2017		Years ended December 31,
	2017		2016		2015
Current tax expense:
U.S. federal	$	20,890	$	24,125	$	24,047
U.S. state	3,975		4,660		4,748
Total current tax expense	24,865		28,785		28,795
Deferred tax expense:
U.S. federal	381		571		1,117
U.S. state	72		109		216
Total deferred tax expense	453		680		1,333
Total income tax expense	$	25,318	$	29,465	$	30,128

Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35% to the pre-tax income for the period from January 1, 2017 through October 29, 2017, and the years ended December 31, 2016 and 2015 as a result of the following:



	January 1, 2017 - October 29, 2017				Years ended December 31,
	2017				2016				2015
Statutory U.S. federal income taxes / rate	$	22,685	35.0	%	$	26,367	35.0	%	$	26,905	35.0	%
State income taxes, net of federal benefit	2,633		4.1	%	3,098		4.1	%	3,223		4.2	%
Total income taxes / effective tax rates	$	25,318	39.1	%	$	29,465	39.1	%	$	30,128	39.2	%

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities for the years ended December 31, 2017 and 2016 were as follows:



	December 31,
	2017		2016
Deferred tax assets:
Environmental cleanup	$	—	$	1,058
Other accrued liabilities	—		449
Total deferred tax assets	—		1,507
Deferred tax liabilities:
Property, plant and equipment	—		(7,366		)
Total deferred tax liabilities	—		(7,366		)
Deferred tax liabilities, net	$	—	$	(5,859	)

For the periods prior to the IPO, we expected to realize our deferred tax assets through the reversal of existing taxable temporary differences and future taxable income. Therefore, a valuation allowance was not established against any deferred tax assets. We considered the reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of October 29, 2017, we recorded $6,312 net deferred tax liabilities. These deferred tax liabilities, along with working capital and other balances were not contributed to the Partnership. The account retained by our Parent are reflected as an equity distribution.

We did not record a liability for uncertain tax positions as of October 29, 2017 and December 31, 2016, respectively. There were no reductions to the balances for settlements with tax authorities or expiration of statutory limitations. As of October 30, 2017, the IRS was in the process of auditing the U.S. consolidated returns of BPA for 2014 and 2015. BPA is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2014.