(4)Income Taxes (in thousands)

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code including, but not limited to, (1) bonus depreciation that will allow for full expensing of qualified property; (2) reduction of the U.S. federal corporate tax rate; (3) elimination of the corporate alternative minimum tax; (4) a new limitation on deductible interest expense; (5) the repeal of the domestic production activity deduction; (6) limitations on the deductibility of certain executive compensation; and (7) limitations on net operating losses generated after December 31, 2017, to 80 percent of taxable income.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. As we are not subject to either the international changes of the Tax Act or other applicable provisions, we believe that the income tax effects of the Tax Act applicable to our accounting under ASC 740 is substantially complete for the year ended December 31, 2017. Additional information that may affect the accounting under ASC 740 would include further clarification and guidance on how the Internal Revenue Service and state taxing authorities will implement the Tax Act. We do not believe potential adjustments in future periods would materially impact the Company’s financial condition or results of operations.

The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. Because ASC 740-10-25-47 requires the effect of a change in tax laws or rates to be recognized as of the date of enactment, we are required to adjust deferred tax assets and liabilities as of December 22, 2017. Accordingly, we have recorded a decrease related to our net deferred tax liability of $16.4 million, with a corresponding net adjustment to deferred income tax benefit of $16.4 million for the year ended December 31, 2017.

Our income tax is different than the expected amount computed using the applicable federal and state statutory income tax rates. The reasons for and effects of such differences for the years ended December 31 are below:


		2017		2016			2015
Expected amount	$	4,868	$	2,966		$	9,653
Adjustment to deferred taxes from the Tax Act rate reduction		(17,974)
Change in Indiana rate							(85	)
State income taxes, net of federal benefit		115		(387	)		612
Percentage depletion		(4,128)		(6,021	)		(2,606	)
Stock-based compensation		(204)		(238	)
Captive insurance		(379)		(418	)		(419	)
Adjustments to NOL carryforwards		(1,038)
Return to provision adjustments		(205)
Other		(249)		72			283
	$	(19,194)	$	(4,026	)	$	7,438

The deferred tax assets and liabilities resulting from temporary differences between book and tax basis are comprised of the following at December 31:


		2017			2016
Long-term deferred tax assets:
Stock-based compensation	$	251		$	512
Investment in Savoy		781			1,031
Net operating loss		13,626			14,908
Alternative minimum tax credit		2,705			4,221
Other		943			564
Total long-term deferred tax assets		18,306			21,236
Long-term deferred tax liabilities:
Coal properties		(47,034	)		(50,439	)
Oil and gas properties		0			(15,971	)
Total long-term deferred tax liabilities		(47,034	)		(66,410	)
Net deferred tax liability	$	(28,728)		$	(45,174	)

Our effective tax rate (ETR) for 2017 was (138)% compared to (48)% for 2016 and 27% for 2015. The negative ETR in 2017 is due primarily to the effects of the Tax Act adjustment to our deferred taxes and prior year tax return reconciliation which were all recorded discretely for the year ended December 31, 2017. The negative ETR in 2016 is due to the combination of the reduction in book income before taxes because of the asset impairment expense, permanent tax benefits of statutory depletion in excess of tax basis in the mining properties, the captive insurance company effects, and stock based compensation expense. The tax rate for the years ended December 31, 2017 and 2016 are not predictive of future tax rates due to the deferred income tax benefit of the Tax Act. The tax rate would have been (9)% without the effects of the deferred income tax benefit of the Tax Act and the prior year tax return reconciliation. Historically, our actual effective tax rates have been lower than the statutory effective rate primarily due to the benefit received from statutory depletion allowances. The deduction for statutory depletion does not necessarily change proportionately to changes in income before income taxes.

We have analyzed our filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions, to determine whether the positions will be more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are not recorded as a tax benefit or expense in the current year. We identified our federal tax return and our Indiana state tax return as “major” tax jurisdictions. We believe that our income tax filing positions and deduction will be sustained on audit and do not anticipate any adjustments that will result in a material change to our consolidated financial position. While not material, we record any penalties and interest as SG&A. Tax returns filed with the IRS for the years 2014 through 2016 along with tax returns filed with numerous state entities remain subject to examination.