Income Taxes

Except as discussed below, the operations of a partnership are generally not subject to income taxes because its income is taxed directly to its partners. The activities of the Blending and Packaging Assets prior to the acquisition by the Partnership were subject to federal and state income taxes. Accordingly, income taxes have been included in the Blending and Packaging Assets' operating results for the three and nine months ended September 30, 2012.

Woodlawn Pipeline Co., Inc (“Woodlawn”), a former subsidiary of the Partnership, was subject to income taxes due to its corporate structure. The assets of Woodlawn were included in the Prism Assets disposed of during 2012. The entity was liquidated on December 31, 2012. Income tax expense related to Woodlawn is recorded in discontinued operations. A current state income tax expense of $90 and $95 related to Woodlawn was recorded for the three and nine months ended September 30, 2012, respectively.

The Partnership established deferred income taxes of $8,964 associated with book and tax basis differences of the acquired Woodlawn assets and liabilities at the date of acquisition. The basis differences related primarily to property, plant and equipment. A deferred tax benefit related to the Woodlawn basis differences of $7,373 and $7,695 was recorded for the three and nine months ended September 30, 2012, respectively. The deferred tax liability related to the Prism Assets was reversed upon the sale of those assets.

Effective January 1, 2007, the Partnership became subject to the Texas margin tax, which is considered a state income tax, and is included in income tax expense on the Consolidated and Condensed Statements of Operations. The Texas margin tax restructured the state business tax by replacing the taxable capital and earned surplus components of the existing franchise tax with a new “taxable margin” component. Since the tax base on the Texas margin tax is derived from an income-based measure, the margin tax is construed as an income tax and, therefore, the recognition of deferred taxes applies to the margin tax. The impact on deferred taxes as a result of this provision is immaterial. State income taxes attributable to the Texas margin tax of $303 and $910 were recorded in continuing operations current income tax expense for the three and nine months ended September 30, 2013 and $238 and $810 for the three and nine months ended September 30, 2012, respectively.

The components of income tax expense (benefit) from operations recorded for the three and nine months ended September 30, 2013 and 2012 are as follows:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Current:
Federal	$	—	$	5,933		$	—	$	7,642
State	303		844			910		1,703
	303		6,777			910		9,345
Deferred:
Federal	—		(7,238		)	—		(7,293		)
Total income tax expense (benefit)	$	303	$	(461	)	$	910	$	2,052

Total income tax expense was allocated to continuing and discontinued operations as follows:

Income tax expense (benefit) from continuing operations:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Current:
Federal	$	—	$	130	$	—	$	1,835
State	303		276		910		1,129
	303		406		910		2,964
Deferred:
Federal	—		135		—		402
Total income tax expense from continuing operations	$	303	$	541	$	910	$	3,366

Income tax expense (benefit) from discontinued operations:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Current:
Federal	$	—	$	5,803		$	—	$	5,807
State	—		568			—		574
	—		6,371			—		6,381
Deferred:
Federal	—		(7,373		)	—		(7,695		)
Total income tax benefit from discontinued operations	$	—	$	(1,002	)	$	—	$	(1,314	)