12. Income Taxes

Income tax expense attributable to income from operations differed from the amount computed by applying the statutory federal income tax rate of 21% as of September 30, 2018 and 35% as of September 30, 2017 to pre-tax income or loss as a result of the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Tax at the federal statutory rate	$	420	$	3,005	$	7,402	$	11,167
State income taxes (net of federal benefit)		88		301		1,532		1,117
2017 qualified timber gains at the federal statutory rate of 23.8% (1)		—		—		(524)		—
Decrease in valuation allowance		(3,480)		(250)		(4,931)		(846)
Change in federal AMT credit carryforward (1)		(511)		—		(511)		—
Other		—		(413)		(153)		(607)
Total income tax (benefit) expense	$	(3,483)	$	2,643	$	2,815	$	10,831

(1)

The Bipartisan Budget Act of 2018 was signed into law on February 9, 2018 (the “2018 Act”). The 2018 Act retroactively re-established the preferential 23.8% tax rate on C Corporation Qualified Timber Gains, extending its applicability from 2016 to include the 2017 tax year. The benefit of this retroactive tax rate reduction is being included in 2018 income from continuing operations.

As of September 30, 2018 and December 31, 2017, the Company had state net operating loss carryforwards of $364.3 million and $391.7 million, respectively and no federal net operating loss carryforwards. The majority of state net operating losses are available to offset future taxable income through 2036. As of December 31, 2017, the Company had an income tax receivable of $8.4 million related to the reclassification of a federal AMT credit carryforward following the enactment of the Tax Act in December 2017, which is refundable to the Company in the years 2018 through 2021. During the nine months ended September 30, 2018, the federal AMT credit carryforward increased $1.0 million, including $0.5 million for the Qualified Timber Gain preferential rate and $0.5 million for actual deductible expenses, both of which were included on the Company’s 2017 tax return. During the nine months ended September 30, 2018, the Company also applied $6.0 million of current income tax payable to this receivable, resulting in an income tax receivable of $3.4 million as of September 30, 2018.

The Tax Act was enacted on December 22, 2017 and changed many aspects of U.S. corporate income taxation including reducing the U.S. federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. The Company recognized the tax effects of the Tax Act during the year ended December 31, 2017, which included a $33.5 million income tax benefit from the reassessment of net deferred tax balances to reflect the newly enacted tax rate.

In general, a valuation allowance is recorded if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Realization of the Company’s deferred tax assets is dependent upon the Company generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from loss carryforwards.

In the third quarter of 2018, the Company reassessed its valuation allowance requirements and evaluated all available evidence in its analysis, including historical and projected pre-tax profits. Based on this assessment the Company determined that it had the ability to realize the net operating loss carryforward and release the valuation allowance. During the three and nine months ended September 30, 2018, the Company recorded $3.5 million and $5.0 million, respectively, of tax benefits related to the reversal of its valuation allowance established on deferred tax assets. As of December 31, 2017, the Company had a valuation allowance of $5.0 million.

The Company had approximately $2.1 million of total unrecognized tax benefits as of both September 30, 2018 and December 31, 2017. Of this total, there are no amounts of unrecognized tax benefits that, if recognized, would affect the effective income tax rate. There were no decreases or increases related to prior year or current year tax positions.