Income Taxes

12 Months Ended

Dec. 31, 2019

The components of income before income taxes are as follows:



	Years ended December 31,
	2019		2018
	(in thousands)
United States	$	88,182	$	55,117
Foreign	699		1,157
Income before income taxes	$	88,881	$	56,274

The components of income tax expense for the years ended December 31, 2019 and 2018 were as follows:



	Federal		State			Foreign		Total
	(in thousands)
2019
Current	$	—	$	722		$	163	$	885
Deferred	20,205		869			—		21,074
Total	$	20,205	$	1,591		$	163	$	21,959

2018
Current	$	—	$	364		$	622	$	986
Deferred	12,871		(814		)	—		12,057
Total	$	12,871	$	(450	)	$	622	$	13,043

The following is a reconciliation of the federal income tax expense at the statutory rate of 21% for the years ended December 31, 2019 and 2018 to the effective income tax expense:



	Years Ended December 31,
	2019			2018
	(in thousands)
Statutory federal income tax expense	$	18,665		$	11,818
State taxes, net of federal benefit	1,440			(526		)
Foreign tax paid	—			622
Foreign jurisdiction rate differential	475			—
Permanent differences-nondeductible executive compensation	2,083			1,144
Permanent differences and other	(704		)	(15		)
Effective income tax expense	$	21,959		$	13,043

The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur.

The following table summarizes the activity related to the Company’s unrecognized tax benefits:



	(in thousands)
Balance as of December 31, 2017	$	191
Decreases due to tax positions expired	(9		)
Balance as of December 31, 2018	182
Increases related to current year tax positions	250
Decreases due to tax positions expired	(162		)
Balance as of December 31, 2019	$	270

A $0.2 million reserve was established as of December 31, 2019 and no reserve was established as of December 31, 2018 for the exposure in Europe. If the Company is able to eventually recognize these uncertain tax positions, all of the unrecognized benefit would reduce the Company’s effective tax rate.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:



	As of December 31,
	2019			2018
	(in thousands)
Deferred tax assets:
Unearned lease revenue	$	1,277		$	1,094
State taxes	152			77
Reserves and allowances	1,988			1,187
Other accruals	4,974			3,795
Foreign tax credit	19			26
Lease liability	271			—
Net operating loss carry forward	12,091			39,996
Charitable contributions	57			38
Total deferred tax assets	20,829			46,213
Less: valuation allowance	(153		)	(652		)
Net deferred tax assets	20,676			45,561

Deferred tax liabilities:
Depreciation and impairment on aircraft engines and equipment	(118,595		)	(133,453		)
Inventory	(2,350		)	—
Right of use liability	(6,900		)	—
Other deferred tax assets (liabilities)	(4,198		)	(2,365		)
Net deferred tax liabilities	(132,043		)	(135,818		)

Other comprehensive loss deferred tax liability	949			(28		)

Net deferred tax liabilities	$	(110,418	)	$	(90,285	)

As of December 31, 2019, the Company had net operating loss carry forwards of approximately $55.8 million for federal tax purposes and $0.4 million (tax effected) for state tax purposes. The federal net operating loss carry forwards will expire at various times from 2023 to 2037 and the state net operating loss carry forwards will expire at various times from 2020 to 2038. There is a $0.2 million valuation allowance for net operating losses in California that expire between 2021 and 2038. The Company’s ability to utilize the net operating loss and tax credit carry forwards in the future may be subject to restriction in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax law. Management believes that no valuation allowance is required on deferred tax assets related to federal net operating loss carry forwards, as it is more likely than not that all amounts are recoverable through future taxable income. The open tax years for federal and state tax purposes are from 2003-2019, respectively.