Income Taxes
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Dec. 31, 2014
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes SHI and all of its eligible domestic U.S. subsidiaries file a consolidated nonlife federal tax return with the Internal Revenue Service. Merit Life Insurance Co. is not an eligible company and therefore, it files a separate stand-alone federal life insurance tax return. Federal income taxes from the nonlife federal tax return are allocated to these eligible subsidiaries under a tax sharing agreement with SHI. Our foreign subsidiaries file tax returns in Puerto Rico, the U.S. Virgin Islands, and the United Kingdom. In connection with the initial public offering of common stock of SHI, AGF Holding Inc. was reorganized under Internal Revenue Code 368 (F-reorganization), and SHI became its successor in October 2013. The Company recognizes a deferred tax liability for the undistributed earnings of its foreign operations, if any, as we do not consider the amounts to be permanently reinvested. As of December 31, 2014, the company had no remaining undistributed earnings. Components of provision for (benefit from) income taxes were as follows:
Expense from foreign income taxes includes our foreign subsidiaries that operate in Puerto Rico, the U.S. Virgin Islands, and the United Kingdom. We recorded a current state income tax provision in 2014, 2013, and 2012 attributable to profitable operations in certain states in which we do business that could not be offset against losses incurred. We recorded a valuation allowance against the majority of our gross state deferred tax assets including all gross state deferred tax assets related to net operating losses. Reconciliations of the statutory federal income tax rate to the effective tax rate were as follows:
The effective tax rate for 2014 was 32.8% compared to (20.9)% for 2013. The effective tax rate for 2014 differed from the federal statutory rate primarily due to the effect of the non-controlling interest in our joint venture, which decreased the effective tax rate by 4.0%, partially offset by the effect of our state income taxes, which increased the effective tax rate by 1.5%. The effective tax rate for 2013 differed from the federal statutory rate primarily due to the effects of the non-controlling interest in our joint venture, a change in tax status, and interest and penalties on prior year tax returns. We recognize interest and penalties in income tax expense. The effective income tax rate for 2012 differed from the federal statutory tax rate primarily due to the impact of recording a full valuation allowance on the deferred tax assets related to our foreign operations and a partial valuation allowance on the deferred tax assets related to our state operations. A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax obligation (all of which would affect the effective tax rate if recognized) is as follows:
Our gross unrecognized tax obligation includes interest and penalties. We recognize interest and penalties related to gross unrecognized tax obligations in income tax expense. We accrued $1.2 million in 2014, $0.2 million in 2013, and $0.2 million in 2012 for the payment of respective tax obligation, interest and penalty, net of any federal benefit. The amount of any change in the balance of uncertain tax liabilities over the next twelve months cannot be ascertained. Components of deferred tax assets and liabilities were as follows:
At December 31, 2014, we had a net deferred tax liability of $148.2 million. The gross deferred tax liabilities are expected to reverse in timing and amount sufficient to create positive taxable income which will allow for the realization of all of our gross federal deferred tax assets. Included in our gross deferred tax assets is the benefit of foreign net operating loss carryforwards of $15.5 million from our United Kingdom operations and $1.9 million from our Puerto Rico operations. At December 31, 2014, we had a valuation allowance on our gross state deferred tax assets of $25.9 million, net of a deferred federal tax benefit. The amount of our state deferred tax assets in the table above is shown net of gross state deferred tax liabilities and therefore differs from the amount of our gross deferred tax assets on which we have recorded a valuation allowance. At December 31, 2014, we also had a $18.5 million valuation allowance against our United Kingdom and Puerto Rico operations. At December 31, 2013, we had a net deferred tax liability of $128.3 million. The gross deferred tax liabilities are expected to reverse in timing and amount sufficient to create positive taxable income which will allow for the realization of all of our gross federal deferred tax assets. Included in our gross deferred tax assets is the benefit of foreign net operating loss carryforwards of $20.3 million from our United Kingdom operations and $1.1 million from our Puerto Rico operations and a foreign tax credit benefit from our Puerto Rico operations of $3.3 million. At December 31, 2013, we had a valuation allowance on our gross state deferred tax assets of $23.8 million, net of a deferred federal tax benefit. The amount of our state deferred tax assets in the table above is shown net of gross state deferred tax liabilities and therefore differs from the amount of our gross deferred tax assets on which we have recorded a valuation allowance. At December 31, 2013, we also had a $21.4 million valuation allowance against our United Kingdom and Puerto Rico operations. At December 31, 2014, we had $96.0 million of net current federal and foreign income tax receivable, compared to $13.6 million tax payable at December 31, 2013. At December 31, 2014, we had $7.5 million of current state tax receivable, compared to $6.1 million of current state tax receivable at December 31, 2013. At December 31, 2014, we had state net operating loss carryforwards of $499.7 million, compared to $348.4 million at December 31, 2013. The state net operating loss carryforwards expire between 2016 and 2035. The United Kingdom net operating loss does not have a statute of limitations. We have a full valuation allowance against it as we do not believe we will have income to offset against it. At December 31, 2014, we had deferred and accrued taxes consisting of $4.0 million of non-income based taxes, compared to $3.6 million at December 31, 2013. |