Income Taxes

For financial reporting purposes, earnings before income taxes includes the following components:



	Year Ended December 31,
(millions)	2018		2017		2016
United States	$	74.9	$	70.0	$	38.9
Foreign	1.1		2.2		2.9
Total	$	76.0	$	72.2	$	41.8

The components of income tax expense are as follows:



	Year Ended December 31,
(millions)	2018			2017			2016
Current provision
U.S. federal	$	9.9		$	21.5		$	13.9
Foreign	1.0			1.0			1.4
State	7.4			3.3			2.6
Total current	18.3			25.8			17.9
Deferred provision
U.S. federal	1.3			2.6			(2.5		)
Foreign	(0.3		)	0.6			(0.4		)
State	0.3			(1.3		)	0.8
Total deferred	1.3			1.9			(2.1		)
Income tax expense	$	19.6		$	27.7		$	15.8

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

Components of the Company's deferred tax assets and liabilities are as follows:



	December 31,
(millions)	2018			2017
Deferred tax assets
Net operating loss carry forwards	$	21.6		$	21.5
Accrued expenses	17.4			18.8
Accrued compensation	7.1			8.1
Book over tax cost unfavorable acquired lease contracts	6.4			8.2
Other	0.9			—
Total gross deferred tax assets	53.4			56.6
Less: valuation allowance	(8.1		)	(7.1		)
Total deferred tax assets	45.3			49.5
Deferred tax liabilities
Prepaid expenses	(0.1		)	(0.1		)
Undistributed foreign earnings	(0.1		)	(0.3		)
Tax over book depreciation and amortization	1.3			(3.8		)
Tax over book goodwill amortization	(22.3		)	(18.2		)
Tax over book cost favorable acquired lease contracts	(4.6		)	(6.1		)
Equity investments in unconsolidated entities	(4.9		)	(5.1		)
Total deferred tax liabilities	(30.7		)	(33.6		)
Net deferred tax asset	$	14.6		$	15.9

On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") was signed into law. The 2017 Tax Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the 2017 Tax Act, the Company recorded $0.2 million of income tax expense in the fourth quarter of 2017. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was $1.6 million income tax benefit, which includes a $1.2 million income tax expense related to an increase in the valuation allowance. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was $1.8 million income tax expense based on the cumulative foreign earnings of $14.1 million and the Company's current best estimate. Additionally, the Company recorded a tax charge of $0.6 million as an additional provision for withholding taxes on undistributed earnings not considered to be permanently reinvested.

For the year ended December 31, 2018, the Company finalized its accounting for the income tax effects of the 2017 Tax Act. The Company recorded a current tax benefit of $1.5 million for the finalization of its accounting for the transition tax on the mandatory deemed repatriation of foreign earnings. The current year tax benefit is the result of the Company finalizing its analysis of foreign earnings and profits and eligible foreign tax credits to be claimed to offset the tax liability.

The 2017 Tax Act also included a provision designed to tax Global Intangible Low Taxed Income (“GILTI”). The Company has elected the period cost method to account for any tax liability subject to the GILTI regime. For the current year the Company did not record any tax liability attributable to GILTI.

The accounting guidance for accounting for income taxes requires that the Company assess the realizability of deferred tax assets at each reporting period. These assessments generally consider several factors including the reversal of existing temporary differences, projected future taxable income, and potential tax planning strategies. The Company has valuation allowances totaling $8.1 million and $7.1 million at December 31, 2018 and 2017, respectively, primarily related to our state Net Operating Loss carryforwards ("NOLs"), foreign tax credits and state tax credits that the Company believes are not likely to be realized based on upon its estimates of future state taxable income, limitations on the uses of its state NOLs, and the carryforward life over which the state tax benefit is realized. The Company recognized a $0.3 million net benefit for the reversal of a valuation allowance for deferred tax assets established for the historical net operating losses.

As of December 31, 2018, the Company recognized approximately $3.9 million of Canadian foreign and $7.2 million of Puerto Rico foreign earnings as permanently reinvested to meet working capital requirements in each jurisdiction. The amount of tax that may be payable on the future distribution of such earnings is approximately $0.2 million and $0.7 million of Canadian and Puerto Rico withholding taxes. No U.S. taxes will be incurred on future distributions of foreign earnings due to the participation exemption under the 2017 Tax Act.

Due to the adoption of ASU 2016-09 in 2017, the Company recognized excess tax benefits of $1.0 million and $0.9 million as income tax benefit for the year ended December 31, 2018 and 2017, respectively, and as a result of the required adoption of ASU 2016-09, the Company's effective tax rate may have increased volatility.

The Company has $19.5 million of tax effected state net operating loss carryforwards as of December 31, 2018, which will expire in the years 2019 through 2038. As noted above, the utilization of net operating loss carryforwards of the Company are limited due to the ownership change in June 2004 and are also limited due to the Central Merger.

A reconciliation of the Company's reported income tax provision to the amount computed by multiplying earnings before income taxes by statutory United States federal income tax rate is as follows:



	Year Ended December 31,
(millions)	2018			2017			2016
Tax at statutory rate	$	16.0		$	25.3		$	14.6
Permanent differences	0.2			0.3			0.8
State taxes, net of federal benefit	6.3			2.5			1.3
Effect of foreign tax rates	0.6			—			—
Effect of 2017 Tax Act	(1.5		)	(1.0		)	—
Minority interest	(0.7		)	(1.1		)	(1.0		)
Current year adjustment to deferred taxes	0.4			1.6			1.3
Recognition of tax credits	(2.7		)	(1.5		)	(1.4		)
Other	—			1.1			0.4
	18.6			27.2			16.0
Change in valuation allowance (1)	1.0			0.5			(0.2		)
Income tax expense	$	19.6		$	27.7		$	15.8
Effective tax rate	25.8		%	38.4		%	37.8		%

(1) The year ended December 31, 2017 includes $1.2 million of additional income tax expense related to an increase in the valuation allowance as a result of the 2017 Tax Act.

Taxes paid, which are for United States Federal income tax, certain state income taxes, and foreign income taxes were $15.3 million, $26.5 million, and $17.6 million in the twelve months ended December 31, 2018, 2017 and 2016, respectively.

As of December 31, 2018 the Company had not identified any uncertain tax positions that would have a material impact on the Company's financial position.

The Company recognizes potential interest and penalties related to uncertain tax positions, if any, in income tax expense. The tax years that remain subject to examination for the Company's major tax jurisdictions as of December 31, 2018 are shown below:



2014 - 2018	United States - federal income tax
2007 - 2018	United States - state and local income tax
2014 - 2018	Foreign - Canada and Puerto Rico