Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

Note 4. Income Taxes

The company files a consolidated federal income tax return. The current and deferred federal and state income tax expense (benefit) for the years ended December 31 is as follows (in thousands):

	2019		2018		2017
Current income tax expense	$	149,106	$	304,726	$	269,387
Deferred income tax expense (benefit)		48,331		59,243		(139,948)
Total income tax expense	$	197,437	$	363,969	$	129,439

Note 4. Income Taxes (Continued)

A reconciliation of the statutory rates to the actual effective tax rates for the years ended December 31 are as follows:

	2019			2018			2017
Statutory federal tax rate		21.0	%		21.0	%		35.0	%
State income taxes, net of federal benefit		2.1			2.6			1.4
Impact from Tax Reform		-			-			(19.3)
Tax benefit of equity compensation		-			(0.1)			(1.1)
Noncontrolling interests		-			-			0.3
Audit settlements		-			(0.3)			-
Domestic manufacturing deduction		-			-			(2.6)
Other permanent differences		(0.5)			(0.7)			0.1
Effective tax rate		22.6	%		22.5	%		13.8	%

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “TCJA Act”) which, among other provisions, reduced the corporate income tax rate from 35% to 21%, effective January 1, 2018. The TCJA Act also included a one-time transition tax related to cumulative foreign earnings, as the United States transitions from a worldwide tax system to a territorial tax system. During the fourth quarter of 2017, the company recorded a $180.6 million net tax benefit to reflect the impacts of the TCJA Act, including a $182.5 million tax benefit to revalue its net deferred tax assets and liabilities as of December 31, 2017, using the newly enacted rate, partially offset by tax expense of $1.9 million related to the transition tax on cumulative foreign earnings.

Significant components of the company’s deferred tax assets and liabilities at December 31 are as follows (in thousands):

	2019		2018
Deferred tax assets
Accrued expenses and allowances	$	19,731	$	19,020
Inventories		5,599		9,599
Net operating loss carryforwards		27,541		30,109
Other		8,020		7,639
		60,891		66,367
Less: valuation allowance		(21,958)		(21,788)
Total net deferred tax assets		38,933		44,579
Deferred tax liabilities
Property, plant and equipment		(487,634)		(455,935)
Intangible Assets		(33,322)		(22,748)
Other		(2,146)		(1,734)
Total deferred tax liabilities		(523,102)		(480,417)
Net deferred tax liability	$	(484,169)	$	(435,838)

Certain wholly-owned and controlled subsidiaries of the company file separate federal and state income tax returns. These subsidiaries have generated federal net operating loss carryforwards of $91.6 million which expire in 2032 to 2037, and state net operating loss carryforwards which principally expire in the years 2029 to 2038. Management has considered the scheduled reversal of the deferred tax liabilities, historical taxable losses, projected taxable income and tax planning strategies in determining that it is more likely than not that some of the deferred tax assets relating to the tax loss carryforwards of the subsidiaries will not be realized. Based on these evaluations, valuation allowances of $22.0 million and $21.8 million have been recorded as of December 31, 2019, and 2018, respectively.

Note 4. Income Taxes (Continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2019		2018		2017
Balance at January 1	$	10,131	$	16,749	$	19,107
Increases related to current year tax positions		750		500		300
Increases related to prior year tax positions		2,198		503		271
Decreases related to prior year tax positions		(1,363)		(798)		(863)
Settlements with taxing authorities		(1,554)		(6,823)		(2,066)
Balance at December 31	$	10,162	$	10,131	$	16,749

Included in the balance of unrecognized tax benefits at December 31, 2019 and 2018, are potential benefits of $6.0 million that, if recognized, would affect the effective tax rate. The company recognizes interest and penalties related to its tax contingencies on a net-of-tax basis in income tax expense. During the years ended December 31, 2019 and 2018, the company recognized benefits from the decrease of interest expense of $400,000 and $1.3 million, respectively, net of tax, and in the year ended December 31, 2017, the company recognized expense from the increase of interest expense of $85,000, net of tax. In addition to the unrecognized tax benefits in the table above, the company had $1.4 million and $2.4 million accrued for the payment of interest and penalties at December 31, 2019 and 2018, respectively.

It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months in an amount ranging from zero to $3.3 million, as a result of the expiration of the statute of limitations and other federal and state income tax audits. The company files income tax returns in the U.S. federal jurisdiction as well as income tax returns in various state jurisdictions. The company has concluded U.S. federal income tax audits through 2015. The tax years 2016 through 2018 remain open to examination by the Internal Revenue Service, and tax years 2015 through 2018 remain open to various state and local jurisdictions.