Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes    TRS Holdings and Observatory TRS are taxable entities and their consolidated provision for income taxes consisted of the following for the years ended December 31, 2020, 2019 and 2018 (amounts in thousands):

	For the Year Ended December 31,
	2020		2019		2018
Current:
Federal	$	4,932	$	(1,077)	$	(2,389)
State and local	2,699		(872)		(2,253)
Total current	7,631		(1,949)		(4,642)
Deferred:
Federal	(340)		(248)		—
State and local	(320)		(232)		—
Total deferred	(660)		(480)		—
Income tax benefit (expense)	$	6,971	$	(2,429)	$	(4,642)

In December 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted. The TCJA includes a number of changes to existing U.S. tax laws, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent, effective January 1, 2018.

In March 2020, the Coronavirus Aid, Relief, Economic Security (“CARES”) Act was enacted. The CARES Act includes a number of federal tax reliefs, including the carryback of a net operating loss (“NOL”) incurred in 2018, 2019 and 2020 to each of the five preceding taxable years to generate a refund of previous paid income taxes. Such NOLs may offset 100% of taxable income for taxable years beginning before 2021 (80% thereafter). Many states, including New York, have not adopted the NOL provisions of the CARES Act and continue to have their own rules with respect to the application of NOLs. The carryback of Observatory TRS’s NOL to previous tax years resulted in a 13% increase of U.S. corporation income tax benefit.

As of December 31, 2020, Empire State Realty Trust, Inc. had $67.9 million NOL carryforwards that may be used in the future to reduce the amount otherwise required to be distributed by us to meet REIT requirements. However, for federal income tax purposes, the NOL will not be able to offset more than 80% of our REIT taxable income and, therefore, may not be able to reduce the amount required to be distributed by us to meet REIT requirements to zero, except for the tax year ended December 31, 2020, of which we were able to offset 100% of our REIT taxable income in accordance with the CARES Act. The federal NOL may be carried forward indefinitely. Other limitations may apply to our ability to use our NOL to offset taxable income.

As of December 31, 2020, the observatory TRS had a federal, state, and local income tax receivable of $8.1 million due to a NOL for the year ended December 31, 2020. Under special provisions of the CARES Act, the NOL can be carried back five years for federal income tax purposes. Due to limitations on the use of net operating loss carrybacks for state and local tax, the observatory TRS will carry forward $3.8 million of NOL to offset future taxable income, if any. The state and local NOL can be carried forward for up to 20 years.

We measure deferred tax assets using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid.

The effective income tax rate is 47.0%, 34.0% and 34.0% for the years ended December 31, 2020, 2019 and 2018, respectively. The actual tax provision differed from that computed at the federal statutory corporate rate as follows (amounts in thousands):

	For the Year Ended December 31,
	2020		2019		2018
Federal tax benefit (expense) at statutory rate	$	2,544	$	(1,575)	$	(2,844)
State income tax benefit (expense), net of federal benefit	2,379		(854)		(1,798)
Corporate income tax rate adjustment	2,048		—		—
Income tax benefit (expense)	$	6,971	$	(2,429)	$	(4,642)

The income tax effects of temporary differences that give rise to deferred tax assets are presented below as of December 31, 2020, 2019 and 2018 (amounts in thousands):

	2020		2019		2018
Deferred tax assets:
Deferred revenue on unredeemed observatory admission ticket sales	$	256	$	916	$	1,396
New York City net operating loss carryforward credit	334		—		—
Deferred tax assets	$	590	$	916	$	1,396

    Deferred tax assets at December 31, 2020, 2019 and 2018, respectively, are attributable to the inclusion of deferred revenue on observatory admission ticket sales not redeemed at year-end in determining income for tax reporting purposes and are included in prepaid expenses and other assets on the consolidated balance sheets. The deferred tax assets at December 31, 2020, respectively, are attributable to the inclusion of the New York City net operating loss to be carried forward and utilized during income years for a period of 20 years. No valuation allowance has been recorded against the deferred tax asset because the company believes that the deferred tax asset will, more likely than not, be realized. This determination is based on the observatory TRS’s anticipated future taxable income and the reversal of the deferred tax asset.

    At December 31, 2020, 2019 and 2018, the TRS entities have no amount of unrecognized tax benefits. For tax years 2020, 2019, 2018 and 2017, the United States federal and state tax returns are open for examination.