Income and Partnership Taxes

12 Months Ended

Dec. 31, 2019

Income and Partnership Taxes:

Federal and state tax legislation in 1997 provided a permanent income tax exemption to existing publicly traded partnerships (PTP), such as Cedar Fair, L.P., with a PTP tax levied on partnership gross income (net revenues less cost of food, merchandise and games) beginning in 1998. In addition, income taxes are recognized for the amount of income taxes payable by Cedar Fair, L.P. and its corporate subsidiaries for the current year and for the impact of deferred tax assets and liabilities that represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. As such, the "Provision for taxes" includes amounts for both the PTP tax and for federal, state, local and foreign income taxes.

The 2019 tax provision totaled $42.8 million, which consisted of a $12.1 million provision for the PTP tax and a $30.7 million provision for income taxes. This compares with the 2018 tax provision of $34.7 million, which consisted of an $11.6 million provision for the PTP tax and a $23.1 million provision for income taxes, and the 2017 tax provision of $1.1 million, which consisted of an $11.1 million provision for the PTP tax and a $10.0 million benefit for income taxes. The calculation of the tax provision involves significant estimates and assumptions. Actual results could differ from those estimates.

Significant components of income before taxes for the years ended December 31, 2019, 2018 and 2017 were as follows:



(In thousands)	2019		2018			2017
Domestic	$	167,510	$	185,749		$	171,382
Foreign	47,644		(24,353		)	45,206
Total income before taxes	$	215,154	$	161,396		$	216,588

The provision (benefit) for income taxes was comprised of the following for the years ended December 31, 2019, 2018 and 2017:



(In thousands)	2019			2018			2017
Income taxes:
Current federal	$	22,745		$	2,682		$	18,640
Current state and local	6,261			4,901			4,631
Current foreign	5,759			4,301			2,501
Total current	34,765			11,884			25,772
Deferred federal, state and local	(5,953		)	15,525			(41,133		)
Deferred foreign	1,847			(4,266		)	5,363
Total deferred	(4,106		)	11,259			(35,770		)
Total provision (benefit) for income taxes	$	30,659		$	23,143		$	(9,998	)

The provision (benefit) for income taxes for the corporate subsidiaries differs from the amount computed by applying the U.S. federal statutory income tax rate of 21% to income before taxes in 2019 and 2018 (35% in 2017).

The sources and tax effects of the differences were as follows:



(In thousands)	2019			2018			2017
Income tax provision based on the U.S. federal statutory tax rate	$	45,182		$	33,893		$	75,806
Partnership income not subject to corporate income tax	(14,031		)	(16,403		)	(23,644		)
State and local taxes, net	4,906			5,278			4,878
Valuation allowance	196			2,321			(119		)
Tax credits	(1,026		)	(1,300		)	(1,063		)
Change in U.S. tax law	111			(8,730		)	(54,171		)
Foreign currency translation (gains) losses	(4,707		)	7,949			(10,756		)
Nondeductible expenses and other	28			135			(929		)
Total provision (benefit) for income taxes	$	30,659		$	23,143		$	(9,998	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of deferred tax assets and liabilities as of December 31, 2019 and December 31, 2018 were as follows:



(In thousands)	2019			2018
Deferred tax assets:
Compensation	$	9,817		$	5,899
Accrued expenses	3,864			3,932
Foreign tax credits	7,439			8,758
Tax attribute carryforwards	2,101			2,321
Derivatives	5,141			1,478
Foreign currency	6,230			8,965
Deferred revenue	2,402			2,521
Deferred tax assets	36,994			33,874
Valuation allowance	(6,606		)	(6,410		)
Net deferred tax assets	30,388			27,464
Deferred tax liabilities:
Property	(95,087		)	(94,847		)
Intangibles	(17,347		)	(14,334		)
Deferred tax liabilities	(112,434		)	(109,181		)
Net deferred tax liability	$	(82,046	)	$	(81,717	)

We record a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The need for this allowance is based on several factors including the carryforward period for net operating losses and tax credits, prior experience of tax credit limitations, and management's long-term estimates of domestic and foreign source income.

As of December 31, 2019, we had recorded a $6.6 million valuation allowance related to an $7.4 million deferred tax asset for foreign tax credit carryforwards. We recognized a $0.2 million and $2.3 million increase in the valuation allowance during 2019 and 2018, respectively. The valuation allowance had previously been reduced by $0.1 million for the year ended December 31, 2017.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act"), was signed into law. The Act included numerous tax law changes, including a reduction in the federal corporate income tax rate from 35% to 21%. As a result of the reduction in the federal corporate income tax rate, we recognized an $8.6 million and $6.1 million current income tax benefit for the years ended December 31, 2018 and December 31, 2017, respectively. The $8.6 million current income tax benefit for 2018 was attributable to the higher blended rate applied to net losses in the first quarter of 2018. The change in tax rates also required the remeasurement of deferred tax balances that are expected to be realized following enactment using the applicable tax rates. As a result of the remeasurement of the net deferred tax liability, we realized a provisional $49.2 million deferred tax benefit for the year ended December 31, 2017. An additional $1.3 million deferred tax benefit was realized for the year ended December 31, 2018. In addition, we are applying the final regulations that were enacted during October 2017 which impacts the recognition of foreign currency gains and losses for the purpose of calculating U.S. taxable income. The impact of these regulations and the Act resulted in a tax charge of $0.1 million in 2019 and tax benefits of $8.7 million and $54.2 million in 2018 and 2017, respectively.

As of December 31, 2019, we had $2.1 million of tax attribute carryforwards consisting entirely of the tax effect of state net operating loss carryforwards. Unused state net operating loss carryforwards will expire from 2020 to 2028. We expect to fully realize these tax attribute carryforwards. As such, no valuation allowance has been recorded relating to these tax attribute carryforwards.

We have recorded a deferred tax liability of $2.6 million and $0.5 million as of December 31, 2019 and December 31, 2018, respectively, to account for foreign currency translation adjustments in other comprehensive income.

Our unrecognized tax benefits, including accrued interest and penalties, were not material in any year presented. We recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense.

We are subject to taxation in the U.S., Canada and various state and local jurisdictions. Our tax returns are subject to examination by state and federal tax authorities. With few exceptions, we are no longer subject to examination by the major taxing authorities for tax years before 2015.