XML 35 R18.htm IDEA: XBRL DOCUMENT v3.6.0.2
Income Taxes
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
The components of the provision for income taxes for the years ended December 31 follow:
 
2016
 
2015
 
2014
Current:
 
 
 
 
 
Federal
$
299.5

 
$
337.6

 
$
328.1

State
34.6

 
38.4

 
39.7

Deferred:
 
 
 
 
 
Federal
44.9

 
91.5

 
(13.3
)
State
2.3

 
25.2

 
7.5

State deferred benefit - change in valuation allowance
(1.4
)
 
(10.5
)
 
(3.2
)
Uncertain tax positions and interest, and other
(27.2
)
 
(36.7
)
 
(21.4
)
Provision for income taxes
$
352.7

 
$
445.5

 
$
337.4


The reconciliations of the statutory federal income tax rate to our effective tax rate for the years ended December 31 follow: 
 
2016
 
2015
 
2014
Federal statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal benefit
3.1

 
4.3

 
3.0

Change in valuation allowance
(0.1
)
 
(0.9
)
 
(0.4
)
Non-deductible expenses
0.9

 
0.6

 
0.9

Uncertain tax position taxes and interest
(0.1
)
 
(1.5
)
 
(0.4
)
Investment tax credits
(1.1
)
 

 

Other, net
(1.2
)
 
(0.2
)
 

Effective income tax rate
36.5
 %
 
37.3
 %
 
38.1
 %

Our 2016 tax provision was reduced by approximately $13 million due to the resolution of various state and federal tax matters as well as the realization of tax credits and lower state rates due to changes in estimates.
In addition, during 2016 we acquired a noncontrolling interest in a limited liability company that qualifies for a federal investment tax credit under Section 48 of the Internal Revenue Code. Our 2016 tax provision was reduced by approximately $10 million mostly due to a federal tax credit related to this investment, which was recognized currently and not deferred. We account for this investment using the equity method of accounting and recognize our share of income or loss and other reductions in the value of our investment in “Loss from unconsolidated equity method investment” within our Consolidated Statements of Income.
Our 2015 tax provision was reduced by approximately $17 million due to the resolution of outstanding tax matters in various states and Puerto Rico. Our 2014 tax provision was reduced by approximately $5 million due to the realization of tax credits and lower state rates due to changes in estimates.
The components of the net deferred income tax asset and liability as of December 31 follow:
 
2016
 
2015
Deferred tax liabilities relating to:
 
 
 
Differences between book and tax basis of property and equipment
$
(1,058.7
)
 
$
(1,050.9
)
Difference between book and tax basis of intangible assets
(711.6
)
 
(713.4
)
Basis difference due to redemption of partnership interests
(130.1
)
 
(128.9
)
Total liabilities
$
(1,900.4
)
 
$
(1,893.2
)
Deferred tax assets relating to:
 
 
 
Environmental reserves
$
449.2

 
$
461.7

Accruals not currently deductible
177.8

 
210.8

Net operating loss carryforwards
103.3

 
103.5

Difference between book and tax basis of other assets
44.5

 
71.3

Other
17.4

 
14.8

Total assets
792.2

 
862.1

Valuation allowance
(62.3
)
 
(63.7
)
Net deferred tax asset
729.9

 
798.4

Net deferred tax liabilities
$
(1,170.5
)
 
$
(1,094.8
)

Changes in the deferred tax valuation allowance for the years ended December 31 follow:
 
2016
 
2015
 
2014
Valuation allowance, beginning of year
$
63.7

 
$
73.9

 
$
76.9

Additions charged to provision for income taxes
0.3

 
0.3

 
0.2

Deferred tax assets realized or written-off
(1.4
)
 
(10.5
)
 
(3.2
)
Other, net
(0.3
)
 

 

Valuation allowance, end of year
$
62.3

 
$
63.7

 
$
73.9


We have deferred tax assets related to state net operating loss carryforwards. We provide a partial valuation allowance due to uncertainty surrounding the future utilization of these carryforwards in the taxing jurisdictions where the loss carryforwards exist. When determining the need for a valuation allowance, we consider all positive and negative evidence, including recent financial results, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. The weight given to the positive and negative evidence is commensurate with the extent such evidence can be objectively verified. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized.
During 2015, we completed a tax restructuring between two of our subsidiaries that possess the majority of our state loss carryforwards. This resulted in a reduction to the valuation allowance of $10.2 million. This reduction was offset by a corresponding decrease to our deferred tax asset related to those same state loss carryforwards.
Substantially all of our valuation allowance is associated with state loss carryforwards. The realization of our deferred tax asset for state loss carryforwards ultimately depends upon the existence of sufficient taxable income in the appropriate state taxing jurisdictions in future periods. We continue to regularly monitor both positive and negative evidence in determining the ongoing need for a valuation allowance.
We have deferred tax assets related to state net operating loss carryforwards with an estimated tax effect of $100.5 million available as of December 31, 2016. These state net operating loss carryforwards expire at various times between 2017 and 2036. We believe that it is more likely than not that the benefit from some of our state net operating loss carryforwards will not be realized due to limitations on these loss carryforwards in certain states. In recognition of this risk, as of December 31, 2016, we have provided a valuation allowance of $59.8 million. Also as of December 31, 2016, we have provided a valuation allowance of $2.5 million for certain other deferred tax assets.
Deferred income taxes have not been provided on the undistributed earnings of our Puerto Rican subsidiaries of approximately $48 million as of December 31, 2016 as such earnings are considered to be permanently reinvested. This amount would become taxable upon a repatriation of assets or a sale or liquidation of the subsidiaries. If such an event were to occur, we would incur approximately $17 million of federal income taxes.
We made income tax payments (net of refunds received) of approximately $265 million, $321 million and $382 million for 2016, 2015 and 2014, respectively.
Income taxes paid in 2016 and 2015 reflect the favorable tax depreciation provisions of the Protecting Americans from Tax Hikes Act signed into law in December 2015. This legislation extends bonus depreciation for property placed in service through 2019. Bonus depreciation deductions for assets placed in service in 2015 to 2017 is 50% of the capitalized value and later decreases to 40% in 2018 and 30% in 2019.
Income taxes paid in 2014 reflect the favorable tax depreciation provisions of the Tax Increase Protection Act of 2014, signed into law in December 2014. This legislation extended 50% bonus depreciation for property placed in service during 2014.
We are subject to income tax in the United States and Puerto Rico, as well as income tax in multiple state jurisdictions. Our compliance with income tax rules and regulations is periodically audited by tax authorities. These authorities may challenge the positions taken in our tax filings. Thus, to provide for certain potential tax exposures, we maintain liabilities for uncertain tax positions for our estimate of the final outcome of the examinations. Our federal statute of limitations is closed for all years prior to 2013. We are currently under state examination or administrative review in various jurisdictions for tax years 2003 to 2015.
The following table summarizes the activity in our gross unrecognized tax benefits for the years ended December 31: 
 
2016
 
2015
 
2014
Balance at beginning of year
$
47.0

 
$
70.1

 
$
72.0

Additions based on tax positions related to current year

 
0.2

 
0.8

Additions for tax positions of prior years
0.1

 
1.4

 
5.0

Reductions for tax positions of prior years
(0.7
)
 
(10.2
)
 
(6.0
)
Reductions for tax positions resulting from lapse of statute of limitations
(0.3
)
 
(0.6
)
 
(0.2
)
Settlements

 
(13.9
)
 
(1.5
)
Balance at end of year
$
46.1

 
$
47.0

 
$
70.1


During 2016, we resolved tax matters in various states which reduced our gross unrecognized tax benefits by $1.0 million.
During 2015, we settled tax matters in various states and Puerto Rico which reduced our gross unrecognized tax benefits by $13.9 million.
During 2014, we settled tax matters in various jurisdictions and reduced our gross unrecognized tax benefits by $1.5 million.
Included in our gross unrecognized tax benefits as of December 31, 2016 and 2015 are $30.0 million and $30.5 million, respectively, of unrecognized tax benefits (net of the federal benefit on state matters) that, if recognized, would affect our effective income tax rate in future periods.
We recognize interest and penalties as incurred within the provision for income taxes in our consolidated statements of income. Related to the unrecognized tax benefits previously noted, we recorded interest expense of approximately $1.0 million during 2016 and, in total as of December 31, 2016, have recognized a liability for penalties of $0.5 million and interest of $11.6 million.
During 2015, we recorded interest expense of approximately $1.2 million and, in total as of December 31, 2015, had recognized a liability for penalties of $0.5 million and interest of $10.3 million. During 2014, we accrued interest of approximately $1.5 million and, in total as of December 31, 2014, had recognized a liability for penalties of $0.5 million and interest of $18.7 million.
Gross unrecognized benefits that we expect to settle in the following twelve months are in the range of $0 to $10 million; however, it is reasonably possible that the amount of unrecognized tax benefits may either increase or decrease in the next twelve months.
We are currently under examination or administrative review by state and local taxing authorities for various tax years. These state audits are ongoing.
We believe the recorded liabilities for uncertain tax positions are adequate. However, a significant assessment against us in excess of the liabilities recorded could have a material adverse effect on our consolidated financial position, results of operations and cash flows.