Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES:

The Company's provision for income taxes for the three months ended September 30, 2019 was $20.0 million, compared with $31.0 million for the three months ended September 30, 2018. The Company's provision for income taxes for the three months ended September 30, 2019 included a $4.2 million benefit from the release of a reserve for an uncertain tax position as a result of a lapse of the statute of limitations. The Company's provision for income taxes for the three months ended September 30, 2018 included a $1.6 million measurement period adjustment to increase the one-time transition (toll) tax on earnings of certain foreign subsidiaries as a result of the Tax Cuts and Jobs Act (TCJA).

The Company's provision for income taxes for the nine months ended September 30, 2019 was $53.1 million compared with $41.6 million for the nine months ended September 30, 2018. Based on developments during the nine months ended September 30, 2018, the Company recorded a reserve for uncertain tax positions of $5.5 million related to tax deductions on intercompany financing arrangements in the U.K., of which $3.7 million related to the period from March 25, 2015, the date of the Freightliner acquisition when the arrangements were established, through December 31, 2017. The provision for income taxes for the nine months ended September 30, 2018 also included an income tax benefit of $31.6 million associated with the retroactive extension of the United States Short Line Tax Credit for fiscal year 2017, which was enacted in February 2018.

The Company's effective income tax rate for the three and nine months ended September 30, 2019 was 22.3% and 24.9%, respectively. The Company's effective income tax rate for the three and nine months ended September 30, 2018 was 30.0% and 17.4%, respectively. Excluding the benefit from the retroactive extension of the United States Short Line Tax Credit and the prior period portion of the reserve for uncertain tax positions, the Company's effective income tax rate for the nine months ended September 30, 2018 was 29.1%. The decrease in the Company's effective income tax rate from 2018, excluding the benefit from the retroactive extension and the prior period portion of the reserve for uncertain tax positions, to 2019 was primarily due to the $4.2 million benefit from the release of a reserve for an uncertain tax position recognized during the three months ended September 30, 2019.

The United States Short Line Tax Credit is an income tax track maintenance credit for Class II and Class III railroads to reduce their federal income tax based on qualified railroad track maintenance expenditures. Qualified expenditures include amounts incurred for maintaining track, including roadbed, bridges and related track structures owned or leased by a Class II or Class III railroad. The credit is equal to 50% of the qualified expenditures, subject to an annual limitation of $3,500 multiplied by the number of miles of railroad track owned or leased by the Class II or Class III railroad as of the end of its tax year. The United States Short Line Tax Credit was initially enacted for a three-year period, 2005 through 2007, and was subsequently extended a series of times with the last extension enacted in February 2018. The February 2018 extension provided a retroactive credit, solely for fiscal year 2017. Legislation is currently pending that seeks to make the United States Short Line Tax Credit permanent for fiscal year 2018 and beyond.