Income Taxes

3 Months Ended

Mar. 31, 2021

Income Taxes [Abstract]

Income Taxes

Note 15.  Income Taxes

The following table presents the components of our consolidated benefit from (provision for) income taxes for the periods indicated (dollars in millions):

	For the Three Months Ended March 31,
	2021			2020
Deferred tax benefit (expense) attributable to     OTA Holdings, Inc. (“OTA”)	$	(6.3	)	$	187.2
Revised Texas Franchise Tax (“Texas Margin Tax”)		(3.3	)		(7.7	)
Other		(0.4	)		(0.3	)
Benefit from (provision for) income taxes	$	(10.0	)	$	179.2

Our federal, state and foreign income tax benefit (provision) is summarized below:

	For the Three Months Ended March 31,
	2021			2020
Current portion of income tax benefit (provision):
Federal	$	0.8		$	(0.1	)
State		(5.1	)		(4.6	)
Foreign		(1.1	)		(0.2	)
Total current portion		(5.4	)		(4.9	)
Deferred portion of income tax benefit (provision):
Federal		(5.9	)		172.8
State		1.3			11.3
Total deferred portion		(4.6	)		184.1
Total benefit from (provision for) income taxes	$	(10.0	)	$	179.2

A reconciliation of the benefit from (provision for) income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows:

	For the Three Months Ended March 31,
	2021			2020
Pre-Tax Net Book Income (“NBI”)	$	1,372.6		$	1,195.8
Texas Margin Tax (1)		(3.3	)		(7.7	)
State income tax benefit (provision), net of federal benefit (2)		(0.6	)		11.3
Federal income tax benefit (provision) computed by applying the federal  statutory rate to NBI of corporate entities		(3.1	)		107.8
Federal benefit attributable to settlement of      Liquidity Option Agreement (2)		–			67.8
Valuation allowance on deferred tax assets (3)		(2.8	)		–
Other		(0.2	)		–
Benefit from (provision for) income taxes	$	(10.0	)	$	179.2
Effective income tax rate		(0.7	)%		15.0	%

(1)	Although the Texas Margin Tax is not considered a state income tax, it has the characteristics of an income tax since it is determined by applying a tax rate to a base that considers our Texas-sourced revenues and expenses.
(2)	The total benefit recognized in income tax expense in March 2020 from settlement of the Liquidity Option Agreement was $72.2 million, which is comprised of $4.4 million of state income tax benefit and $67.8 million of federal income tax benefit.
(3)	Management believes that it is more likely than not that the net deferred tax assets attributable to OTA will not be fully realizable.  Accordingly, we provided for a valuation allowance against OTA’s net deferred tax assets at March 31, 2021.

The following table presents the significant components of deferred tax assets and deferred tax liabilities at the dates indicated:

	March 31,		December 31,
	2021		2020
Deferred tax liabilities:
Attributable to investment in OTA	$	362.9	$	356.6
Attributable to property, plant and equipment		105.2		106.4
Attributable to investments in other entities		4.0		4.1
Other		13.5		–
Total deferred tax liabilities		485.6		467.1
Less deferred tax assets:
Net operating loss carryovers (1)		2.9		0.1
Temporary differences related to Texas Margin Tax		2.7		2.3
Total deferred tax assets		5.6		2.4
Total net deferred tax liabilities before valuation allowance		480.0		464.7
Less: Valuation allowance on deferred tax assets		2.8		–
Total net deferred tax liabilities	$	482.8	$	464.7

(1) Of the loss amount presented for March 31, 2021, $0.1 million expires in various years between 2021 and 2037.  The remaining $2.8 million has an indefinite carryover period.  All losses are subject to limitations on their utilization.

OTA Deferred Tax Liability

On March 5, 2020, the Partnership settled its obligations under a put option agreement (the “Liquidity Option Agreement” or “Liquidity Option”) with OTA and Marquard & Bahls AG, and became the owner of OTA and indirectly assumed its deferred tax liability, which reflects OTA’s outside basis difference in the limited partner interests it received from the Partnership in October 2014. Upon settlement of the Liquidity Option, the Liquidity Option liability recorded by the Partnership was effectively replaced by the deferred tax liability of OTA calculated in accordance with ASC 740, Income Taxes.

At March 5, 2020, the Liquidity Option liability amount was $511.9 million.  Since the book value of the Liquidity Option liability exceeded OTA’s estimated deferred tax liability of $439.7 million on that date, we recognized a non-cash benefit in earnings of $72.2 million, which is reflected in the “Benefit from (provision for) income tax” line on our Unaudited Condensed Statement of Consolidated Operations for the three months ended March 31, 2020.  OTA recognized an additional net, non-cash deferred income tax benefit of $115.0 million at March 31, 2020 primarily due to a decrease in the outside basis difference of its investment in the Partnership attributable to a decline in the market price of the Partnership’s common units subsequent to March 5, 2020 through March 31, 2020.  In total, our earnings for the three months ended March 31, 2020 reflect $187.2 million of net deferred income tax benefit attributable to OTA.