Income Taxes

The Tax Cuts and Jobs Act of 2017 (“Tax Act”) was signed into law on December 22, 2017 with an effective date of January 1, 2018. Most notably, the Tax Act reduced the statutory federal income tax rate for corporations from 35% to 21%. Since we file our tax return based on our fiscal year, the statutory federal income tax rate for our 2018 tax return was a blended rate of 28.1%. In addition to the effect of the lower overall federal tax rate, the Tax Act resulted in a $9.5 million one-time benefit for the re-measurement of our net deferred tax liability in 2018. The statutory federal income tax rate for our 2019 tax return will be 21%.

The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) on December 22, 2017. SAB 118 allowed for a measurement period in which companies could either use provisional estimates for changes resulting from the Tax Act or apply the tax laws that were in effect immediately prior to the Tax Act being enacted if estimates could not be determined at the time of the preparation of the financial statements until the actual impacts could be determined. We recorded an initial estimate of the impact of the Tax Act within our December 31, 2017 financial statements, and the adjustments recorded in the second half of 2018 were not material. The measurement period has ended, and we have completed the accounting for all the impacts of the Tax Act.

We file a consolidated federal income tax return. Taxes based on income for the years ended June 30 have been provided as follows:



	2019		2018			2017
Currently payable:
Federal	$	30,220	$	40,766		$	51,524
State and local	8,070		7,355			6,319
Total current provision	38,290		48,121			57,843
Deferred federal, state and local provision (benefit)	6,703		(9,232		)	2,359
Total taxes based on income	$	44,993	$	38,889		$	60,202

In 2018, we adopted new accounting guidance for stock-based compensation. One of the changes resulting from this new guidance is the inclusion of the tax consequences related to stock-based compensation within the computation of income tax expense versus equity. We adopted this provision on a prospective basis. Prior to 2018, certain tax benefits were recorded directly to common stock, and these amounts totaled $1.1 million for 2017.

For the years ended June 30, our effective tax rate varied from the statutory federal income tax rate as a result of the following factors:



	2019		2018		2017
Statutory rate	21.0	%	28.1	%	35.0	%
State and local income taxes	3.5		3.0		2.4
Net windfall tax benefits - stock-based compensation	(0.8	)	(0.4	)	—
ESOP dividend deduction	(0.1	)	(0.1	)	(0.1	)
One-time benefit on re-measurement of net deferred tax liability	—		(5.5	)	—
Domestic manufacturing deduction for qualified income	—		(2.3	)	(2.8	)
Other	(0.6	)	(0.5	)	(0.2	)
Effective rate	23.0	%	22.3	%	34.3	%

Our net deferred tax liability for all periods presented in the Consolidated Balance Sheets has been classified as noncurrent. The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30 were comprised of:



	2019			2018
Deferred tax assets:
Employee medical and other benefits	$	7,809		$	6,407
Receivables	2,332			3,992
Inventories	311			1,112
Other accrued liabilities	2,069			1,029
Total deferred tax assets	12,521			12,540
Deferred tax liabilities:
Property, plant and equipment	(16,993		)	(15,551		)
Goodwill	(10,037		)	(5,044		)
Intangible assets	(8,295		)	(8,518		)
Other	(78		)	(231		)
Total deferred tax liabilities	(35,403		)	(29,344		)
Net deferred tax liability	$	(22,882	)	$	(16,804	)

Prepaid federal income taxes of $5.2 million and $3.6 million were included in Other Current Assets at June 30, 2019 and 2018, respectively. Prepaid state and local income taxes of $0.1 million and $0.9 million were included in Other Current Assets at June 30, 2019 and 2018, respectively.

Net cash payments for income taxes for each of the years ended June 30 were as follows:



	2019		2018		2017
Net cash payments for income taxes	$	38,644	$	46,198	$	59,008

The gross tax contingency reserve at June 30, 2019 was $1.7 million and consisted of estimated tax liabilities of $1.0 million and interest and penalties of $0.7 million. The unrecognized tax benefits recorded as the gross tax contingency reserve noted in the following table for June 30, 2019 and 2018 would affect our effective tax rate, if recognized.

The following table sets forth changes in our total gross tax contingency reserve (including interest and penalties):



	2019			2018
Balance, beginning of year	$	1,298		$	1,808
Tax positions related to the current year:
Additions	87			12
Reductions	—			—
Tax positions related to prior years:
Additions	694			86
Reductions	(26		)	(41		)
Lapse of statute of limitations	—			(567		)
Settlements	(383		)	—
Balance, end of year	$	1,670		$	1,298

We included $0.8 million of the gross tax contingency reserve at June 30, 2019 in Accrued Liabilities as these amounts are expected to be resolved within the next 12 months. The remaining liability of $0.9 million was included in Other Noncurrent Liabilities. We expect that the amount of these liabilities will change within the next 12 months; however, we do not expect the change to have a significant effect on our financial position or results of operations.

We recognize interest and penalties related to these tax liabilities in income tax expense. For each of the years ended June 30, we recognized the change in the accrual for net tax-related interest and penalties as follows:



	2019		2018
Expense (benefit) recognized for net tax-related interest and penalties	$	64	$	(78	)

We had accrued interest and penalties at June 30 as follows:



	2019		2018
Accrued interest and penalties included in the gross tax contingency reserve	$	669	$	605

We file federal and various state and local income tax returns in the United States. With limited exceptions, we are no longer subject to examination of U.S. federal or state and local income taxes for years prior to 2016.

The American Jobs Creation Act provided a tax deduction calculated as a percentage of qualified income from manufacturing in the United States. This deduction was repealed by the Tax Act. Therefore, 2018 was the final year that we were able to claim this deduction.