Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

Note 8: Income Taxes

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which among other changes, eliminated the taxable income limit for certain net operating losses ("NOL"), allowed businesses to carryback NOLs arising in 2018, 2019 and 2020 to the five prior years, and provided a payment delay of employer payroll taxes during 2020 after the date of enactment. These provisions enabled RPC to carryback federal tax losses related to 2019 and 2020. The Company recorded net tax benefits totaling $29 million in 2020 related to these provisions.

The Tax Cuts and Jobs Act (“the Act”) effective January 1, 2018, included a reduction to the US federal tax rate from 35 percent to 21 percent, and a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. The Act also resulted in an adjustment of deferred tax assets and liabilities for the new corporate tax rate, and adjustments to deductible compensation of our executive officers. In addition, the Act imposes a new tax on foreign earnings and profits in excess of a deemed return on tangible assets of foreign subsidiaries referred to as Global Low Taxed Intangible Income (“GILTI”), a new tax on certain payments between a U.S. corporation and its foreign subsidiaries referred to as Base Erosion and Anti-Abuse Minimum Tax (“BEAT”), and a new tax deduction on certain qualifying income related to export sales of property or services referred to as Foreign Derived Intangible Income (“FDII”).

In accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 118, the Company completed its accounting for the provisional amounts recognized as of December 31, 2017 and recorded a reduction in tax expense of $5.1 million, recorded in 2018 as a discrete tax benefit. These adjustments were recorded as components of income tax expense from continuing operations.

The following table lists the components of the provision (benefit) for income taxes:

Years ended December 31,	2020		2019		2018
(in thousands)
Current provision (benefit):
Federal	$	(74,841)	$	(3,548)	$	13,708
State		2,200		(3,185)		3,932
Foreign		1,247		2,968		6,843
Deferred provision (benefit):
Federal		(16,376)		(26,493)		23,203
State		(9,469)		4,268		(1,808)
Total income tax (benefit) provision	$	(97,239)	$	(25,990)	$	45,878

Reconciliation between the federal statutory rate and RPC’s effective tax rate is as follows:

Years ended December 31,	2020		2019		2018
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	1.5		(0.3)		2.6
Tax credits	0.1		0.3		(0.1)
Non-deductible expenses	(0.1)		(1.9)		1.8
Adjustments related to CARES Act	8.5		—		—
Adjustments related to the Act	—		—		(2.3)
Adjustments related to vesting of restricted stock	(0.8)		(0.4)		(0.8)
Other	1.2		4.3		(1.5)
Effective tax rate	31.4	%	23.0	%	20.7	%

Significant components of the Company’s deferred tax assets and liabilities are as follows:

December 31,	2020		2019
(in thousands)
Deferred tax assets:
Self-insurance	$	4,773	$	5,729
Pension		8,105		9,617
State net operating loss carryforwards		5,853		1,445
Bad debt		1,302		1,392
Stock-based compensation		2,291		3,358
Inventory reserve		3,226		2,478
Impairment reserve		338		2,802
Foreign tax credit carryforwards		—		3,086
Federal net operating loss carryforwards		—		19,664
Basis differences in consolidated limited liability company		486		5,778
All others		1,126		2,191
Gross deferred tax assets		27,500		57,540
Deferred tax liabilities:
Depreciation		(33,486)		(87,647)
Goodwill amortization		(6,893)		(6,763)
Basis differences in joint ventures		(448)		(444)
All others		(5)		(5)
Gross deferred tax liabilities		(40,832)		(94,859)
Net deferred tax liabilities	$	(13,332)	$	(37,319)

The Company’s current intention is to permanently reinvest funds held in our foreign subsidiaries outside of the U.S., with the possible exception of repatriation of funds that have been previously subject to U.S. federal and state taxation or when it would be tax effective through the utilization of foreign tax credits, or would otherwise create no additional U.S. tax cost.

As of December 31, 2020, the Company had net operating losses related to federal income taxes of $95.5 million which will be carried back to 2015 due to the CARES Act. As of December 31, 2020, the Company has net operating loss carryforwards related to state income taxes of $60.2 million (gross) that will expire between 2021 and 2036, with a valuation allowance of $434 thousand. The valuation allowance is representing the tax-affected amount of loss carryforwards that the Company does not expect to utilize, against the corresponding deferred tax asset.

As of December 31, 2020, the Company has foreign tax credits of $4.8 million that the Company intends to carryback to the 2017 tax year.

Additionally, as of December 31, 2020, the Company has capital loss carryforwards of $56 thousand that are not expected to be utilized, and therefore has a full valuation allowance against the corresponding deferred tax asset.

Total net income tax payments (refunds) were $(10.1) million in 2020, $(11.8) million in 2019, and $18.0 million in 2018.

The Company and its subsidiaries are subject to U.S. federal and state income taxes in multiple jurisdictions. In many cases, our uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities. In general, the Company’s 2016 through 2019 tax returns remain open to examination. Additional years may be open to the extent attributes are being carried forward to an open year.

As of December 31, 2020 and 2019, our liability for unrecognized tax benefits related to state income taxes was recorded as part of our 2020 effective rate, due to the expiration of the related state tax statute. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2020		2019
Balance at January 1	$	2,215,000	$	2,215,000
Additions for tax positions of prior years		—		—
Reductions for tax positions of prior years	$	(2,215,000)		—
Balance at December 31		—	$	2,215,000

It is reasonably possible that the amount of the unrecognized tax benefits with respect to our unrecognized tax positions will increase or decrease in the next 12 months. These changes may result from, among other things, state tax settlements under voluntary disclosure agreements, or conclusions of ongoing examinations or reviews. However, quantification of an estimated range cannot be made at this time.

The Company's policy is to record interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties as of December 31, 2020, 2019, and 2018 were $17 thousand, $203 thousand, and $263 thousand, respectively.