Income Taxes

Total income before income taxes, classified by source of income, was as follows:



	Year Ended December 31,
	2018		2017		2016
	(in thousands)
U.S.	$	251,056	$	217,725	$	116,852
Outside the U.S.	22,202		31,492		31,288
Income before income taxes	$	273,258	$	249,217	$	148,140

The provision for income taxes, classified by the timing and location of payment, was as follows:



	Year Ended December 31,
	2018			2017			2016
	(in thousands)
Current tax expense
Federal	$	48,941		$	63,279		$	62,216
State	8,966			5,183			8,163
Foreign	1,471			2,000			745
Deferred tax (benefit) expense
Federal	(1,459		)	55,007			(25,309		)
State	(959		)	1,676			(4,250		)
Foreign	(57		)	(255		)	(137		)
Income taxes	$	56,903		$	126,890		$	41,428

Net deferred tax assets consisted of:



	December 31,
	2018			2017
	(in thousands)
Property, equipment and intangible assets	$	(17,212	)	$	(8,026	)
Accrued compensation	12,790			12,472
Accrued expenses	30,720			20,724
State Tax Credits	2,438			1,595
Foreign net operating losses	2,119			2,286
Valuation allowance on foreign net operating losses	(1,653		)	(1,392		)
Other	1,411			(474		)
Net deferred tax assets	$	30,613		$	27,185

Balance sheet presentation:



	December 31,
	2018		2017
	(in thousands)
Non-current net deferred tax assets	$	30,613	$	27,224
Non-current net deferred tax assets (liabilities)	—		(39		)
Net deferred tax assets	$	30,613	$	27,185

As of December 31, 2018, the Company had foreign net operating loss carryforwards of approximately $6.7 million before applying tax rates for the respective jurisdictions, subject to a valuation allowance of $5.0 million. Approximately $1.2 million of our foreign net operating losses may expire between 2020 and 2036. In addition, the Company has recorded a valuation allowance on approximately $0.5 million of foreign deferred tax assets before applying the tax rate of the respective jurisdiction.

The statutory U.S. federal income tax rate reconciles to the effective income tax rates as follows:



	Year Ended December 31,
	2018		2017		2016
Statutory U.S. federal income tax rate	21.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.9	%	1.8	%	1.5	%
Benefits and taxes related to foreign operations	(0.5	)%	(3.9	)%	(6.9	)%
Excess tax benefit on share-based compensation	(1.8	)%	(1.5	)%	(2.3	)%
Unrecognized tax positions	(0.4	)%	(0.2	)%	0.3	%
Transition Tax imposed on unrepatriated foreign earnings	(0.1	)%	14.1	%	—	%
Write-down of net deferred tax assets due to U.S. rate change	0.4	%	5.3	%	—	%
Other	(0.7	)%	0.3	%	0.4	%
Effective income tax rates	20.8	%	50.9	%	28.0	%

The Company's effective income tax rates were 20.8%, 50.9% and 28.0%, for the years ended December 31, 2018, 2017 and 2016, respectively.

The Tax Cuts and Jobs Act (the "Tax Act") was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate income tax rate from 35.0% to 21.0%, requires companies to pay a one-time transition tax on earnings of foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign-sourced earnings. The Company applied the guidance in Staff Accounting Bulletin 118 ("SAB 118") when accounting for the enactment-date effects of the Tax Act. As of September 30, 2018, the Company finalized its calculations related to the tax effects of the Tax Act and there were no significant changes to the impacts estimated as part of the year ended 2017 provision for income taxes.

The Tax Act subjects a U.S. shareholder to a minimum tax on “global intangible low-taxed income” ("GILTI") earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred. The Company has elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred and has incurred tax for the year ended December 31, 2018.

Due to the recent changes resulting from the Tax Act, the Company has implemented a new foreign dividend policy effective during the quarter ended September 30, 2018. As a result of the new policy, the Company intends to limit any future foreign distributions to income which has been previously subject to U.S. taxation, for which relevant taxes have been recorded. Nonetheless, the Company will continue to assert that any other outside basis difference of the foreign subsidiaries will be permanently (or indefinitely) reinvested outside of the U.S. Consequently, the Company did not record any additional deferred taxes for this item in 2018.

The effective income tax rate for the year ended December 31, 2018 was lower than the U.S. federal statutory rate of 21.0% primarily due to excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by the impact of state income taxes. The effective income tax rate for the year ended December 31, 2017 was higher than the U.S. federal statutory rate of 35.0% primarily due to the transition tax of $35.3 million and the $13.2 million impairment of our net domestic deferred tax assets resulting from the reduction of the U.S. federal corporate income tax rate to 21.0% effective January 1, 2018. The increase from these items was partially offset by the impact of foreign operations and excess tax benefits from share-based compensation.

As of December 31, 2018, 2017 and 2016, the Company’s gross unrecognized tax benefits totaled $1.6 million, $2.3 million and $2.7 million, respectively. After considering the deferred income tax accounting impact, it is expected that about $1.3 million of the total as of December 31, 2018 would favorably affect the effective tax rate if resolved in the Company’s favor. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:



	2018			2017			2016
	(in thousands)
Balance, January 1	$	2,284		$	2,691		$	3,137
Changes for tax positions of prior years	(861		)	(16		)	580
Increases for tax positions related to the current year	165			138			181
Settlements and lapsing of statutes of limitations	—			(529		)	(1,207		)
Balance, December 31	$	1,588		$	2,284		$	2,691

It is reasonably possible that the Company’s unrecognized tax benefits could decrease within the next 12 months by as much as $1.6 million due to settlements and the expiration of applicable statutes of limitations. The Company's federal income tax returns for tax years 2017 remain subject to examination by the Internal Revenue Service.

The practice of the Company is to recognize interest and penalties related to income tax matters in the provision for income taxes. The Company did not incur any material interest or penalties for 2018 and 2017. The Company had $0.2 million and $0.6 million of accrued interest and penalties at December 31, 2018 and 2017, respectively.