Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

The provision for income taxes is based on the earnings reported in the accompanying consolidated financial statements. The Company recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred income tax liabilities and assets are determined based on the cumulative temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates expected to be applied to taxable income in years which those temporary differences are expected to be recovered or settled. Deferred income tax expense is measured by the net change in deferred income tax assets and liabilities during the year.

The Tax Cuts and Jobs Act (the “Act”), a tax reform bill signed into law in 2017, reduced the current federal income tax rate for corporations to 21% from 35%, among other things. The rate reduction was effective as of January 1, 2018, and as written is permanent. The Act caused the Company’s deferred income taxes to be revalued during calendar year 2017, resulting in a reduction to income tax expense of $38.4 million in that period. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. The one time transition tax calculation, a separate provision of the Act, was also competed and was not material.

The foreign components of income before the provision for income taxes were not material for the year ended December 31, 2019, 2018 and 2017. The components of the provision for income taxes are as follows:



	2019			2018			2017
Currently payable:
Federal	$	73,563,685		$	83,010,387		$	133,166,194
State	3,765,929			3,743,781			3,984,000
Foreign	1,468,018			1,776,837			2,440,000
Total	78,797,632			88,531,005			139,590,194
Deferred income tax (benefit) expense:
Primarily federal	(3,066,237		)	(4,367,155		)	(14,585,412		)
Provision for income taxes	$	75,731,395		$	84,163,850		$	125,004,782

The effective income tax rates are different from the statutory federal income tax rates for the following reasons:



	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal income tax benefit	0.6		0.6		0.5
Domestic production exclusion	—		—		(2.8	)
Research tax credit	(1.1	)	(0.8	)	(0.8	)
Increase in reserve for uncertain tax provisions	0.3		0.1		0.1
Change in tax rate on deferred taxes	—		0.5		(7.2	)
Foreign tax credit	(0.1	)	(0.1	)	(0.8	)
Foreign derived intangible income deduction	(4.8	)	(4.6	)	—
Stock compensation	(1.1	)	(1.0	)	(1.0	)
Other	0.3		0.4		0.5
Effective income tax rate	15.1	%	16.1	%	23.5	%

The tax effect of temporary differences which give rise to deferred income tax assets and liabilities at December 31, 2019 and 2018, are as follows:



	December 31,
	2019			2018
Assets:
Accruals not currently deductible	$	6,478,146		$	5,111,242
Stock based compensation	9,100,745			9,586,372
Other	66,830			356,039
Total deferred income tax assets	$	15,645,721		$	15,053,653
Liabilities:
Excess tax over book depreciation	(30,725,471		)	(39,835,025		)
Goodwill	(27,799,640		)	(23,341,226		)
Intangible assets	(6,171,628		)	(5,089,042		)
Other	(2,403,131		)	(1,309,849		)
Total deferred income tax liability	$	(67,099,870	)	$	(69,575,142	)
Net deferred income taxes	$	(51,454,149	)	$	(54,521,489	)

Income taxes paid in cash were approximately $74.9 million, $86.9 million and $126.0 million in 2019, 2018 and 2017, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2019			2018			2017
Beginning of year	$	4,678,000		$	4,435,000		$	3,408,000
Additions based on tax positions related to the current year	1,695,000			1,677,000			941,000
Additions for tax positions in prior years	657,000			283,000			289,000
Reductions for tax positions in prior years	(38,000		)	(163,000		)	(63,000		)
Reductions as a result of completed audit examinations	—			(1,554,000		)	—
Reductions as a result of a lapse of the applicable statute of limitations	(600,000		)	—			(140,000		)
End of year	$	6,392,000		$	4,678,000		$	4,435,000

If recognized, unrecognized tax benefits would affect the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits through the provision for income taxes. The Company has accrued approximately $574,000, $315,000, and $433,000 for interest as of December 31, 2019, 2018, and 2017, respectively. Interest recorded during 2019, 2018 and 2017 was not considered significant.

The Company is also subject to periodic and routine audits in both domestic and foreign tax jurisdictions, and it is reasonably possible that the amounts of unrecognized tax benefits could change as a result of an audit.

Based on the current audits in process, the payment of taxes as a result of audit settlements, and the completion of tax examinations, the Company does not expect these to have a material impact on the Company’s financial position or results of operations.

For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2015.