

NOTE 6:	INCOME TAXES

Income tax expense is composed of the following:



	Year Ended December 31,
	2017			2016			2015
Current:
Federal	$	14,020		$	12,637		$	8,954
State	379			342			1,003
	14,399			12,979			9,957
Deferred:
Federal	(3,764		)	(254		)	3,174
State	300			808			(904		)
	(3,464		)	554			2,270
Total	$	10,935		$	13,533		$	12,227

Income tax expense also included tax expense allocated to comprehensive income for 2017, 2016, and 2015, of $37, $84, and $83, respectively (see the Consolidated Statements of Comprehensive Income).

On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the "Tax Act"), resulting in significant modifications to existing law, that impacted the measurement of income taxes for 2017. The Tax Act established new tax laws or modified existing tax laws starting in 2018, including but not limited to, (1) reducing the federal corporate income tax rate to a flat 21 percent rate, (2) eliminating the corporate alternative minimum tax, (3) repealing the domestic production activity deduction, (4) adding a new limitation on deductible interest, (5) changing the limitations on the deductibility of certain executive compensation, and, (6) starting in the quarter ended September 30, 2017, changing the bonus depreciation rules to allow full expensing of qualified property.

The SEC staff issued Staff Accounting Bulletin No. 118 ("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 Accounting Standards Codification 740 - Income Taxes ("ASC 740"). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for the income tax effects of the Tax Act is incomplete, but it can determine a reasonable estimate, it must record a provisional estimate in the financial statements.

The Company, following guidance in SAB 118, recorded a provisional discrete net tax benefit in its Consolidated Statement of Income through net income of $3,343 in 2017. This net benefit was driven by a re-measurement of the carrying value of its deferred tax assets and liabilities because of corporate rate reduction. The Company’s accounting for all of the elements of the Tax Act is not complete. However, the Company was able to make reasonable estimates and, therefore, recorded provisional estimates. The ultimate impact of the Tax Act may differ from the provisional amount, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company made, additional regulatory guidance that may issued, and action the Company may take as a result of the Tax Act. The accounting is expected to be complete when the Company's 2017 United States corporate income tax return is filed in 2018.

A reconciliation of income tax expense at the normal statutory federal rate to income tax expense included in the accompanying Consolidated Statements of Income:



	Year Ended December 31,
	2017			2016			2015
"Expected" provision at federal statutory rate	$	18,465		$	15,651		$	13,446
State income taxes, net	1,612			1,672			1,714
Change in valuation allowance	(578		)	(718		)	(2,385		)
Domestic production activity deduction	(957		)	(1,247		)	(1,002		)
Share-based compensation^(a)	(4,254		)	(1,408		)	N/A
Compensation limits	931			—			—
Federal and state tax credits	(1,058		)	(1,065		)	—
Tax benefit from the Tax Act	(3,343		)	—			—
Other	117			648			454
Income tax expense	$	10,935		$	13,533		$	12,227
Effective tax rate	20.7		%	30.3		%	31.8		%

^(a)

The Company elected to early adopt ASU No. 2016-09, Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting, in the quarter ended September 30, 2016 and, due to a required change in accounting principle, beginning that quarter, all excess tax benefits and deficiencies related to employee stock compensation are recognized within income tax expense in the Consolidated Statements of Income. The Company received federal tax benefits in 2017 and 2016 of $4,254 and $1,408, respectively, and state benefits of $371 and $163, respectively, for excess tax benefits.

The tax effects of temporary differences giving rise to deferred income taxes shown on the Consolidated Balance Sheets are as follows:



	December 31,
	2017			2016
Deferred income tax assets:
Post-retirement liability	$	910		$	1,621
Deferred income	543			1,176
Share-based compensation	1,158			1,313
Capital loss carryforwards	—			716
State tax credit carryforwards	3,488			3,204
State operating loss carryforwards	1,434			1,151
Inventories	1,346			2,560
Other	766			1,381
Gross deferred income tax assets	$	9,645		$	13,122
Less: valuation allowance	(148		)	(726		)
Net deferred income tax assets	9,497			12,396
Deferred income tax liabilities:
Fixed assets	(9,255		)	(14,313		)
Equity method investments	—			(969		)
Other	(254		)	(546		)
Gross deferred income tax liabilities	(9,509		)	(15,828		)
Net deferred income tax liability	$	(12	)	$	(3,432	)

A schedule of the change in valuation allowance is as follows:



	Valuation allowance
Balance at December 31, 2015	$	1,444
Reductions	718
Balance at December 31, 2016	$	726
Reductions	578
Balance at December 31, 2017	$	148

As of December 31, 2017, the Company’s total valuation allowance of $148 related to net operating loss carryforwards in states in which it is not more likely than not that it can create enough state taxable income to fully utilize the carryforwards before expiration of the carryforward periods. Due to capital gains realized from the sale of the Company's 30 percent interest in ICP during 2017, the Company was able to utilize all of its federal capital loss carryforwards in 2017, and, therefore, reduced the valuation allowance and corresponding deferred tax asset by $690. The remainder of the change in the valuation allowance was an increase of $112 for additional net operating loss carryforwards, for a net reduction of $578.

As of December 31, 2016, the Company’s total valuation allowance was $726 relating primarily to capital loss carryovers. Capital loss carryovers remaining as of December 31, 2016 were set to expire between 2018 and 2020 if not utilized. During 2016, the Company reduced its valuation allowance by $718, of which $689 related to capital loss carryovers that expired unused at the end of 2016, and the deferred tax asset and associated valuation allowance were eliminated as of December 31, 2016.

As of December 31, 2017, the Company had $19,979 in gross state net operating loss carryforwards. As of December 31, 2016, the Company had $23,074 in state net operating loss carryforwards. Due to varying state carryforward periods, the state net operating loss carryforwards will expire in varying years between 2018 and 2037. The Company has gross state tax credit carryforwards of $4,416 as of December 31, 2017 and $4,929 as of December 31, 2016. State credits, if not used to offset income tax expense in their respective jurisdictions, will expire in varying years between 2020 and 2032.

The Company treats accrued interest and penalties related to tax liabilities, if any, as a component of income tax expense. During 2017, 2016, and 2015, the Company’s activity in accrued interest and penalties was not significant.

The following is a reconciliation of the total amount of unrecognized tax benefits (excluding interest and penalties) for 2017, 2016, and 2015:



	Year Ended December 31,
	2017		2016			2015
Beginning of year balance	$	43	$	613		$	613
Additions for tax positions of prior years	130		2			—
Additions for tax positions of the current year	12		21			—
Reduction for prior year tax positions	—		(48		)	—
Reductions for settlements	—		(545		)	—
End of year balance	$	185	$	43		$	613

For each period presented, substantially all of the amount of unrecognized benefits (excluding interest and penalties) would impact the effective tax rate, if recognized. The Company reasonably expects that the amount of unrecognized tax benefit will not decrease by a significant amount in the next 12 months.

The Company has been audited for United States income tax purposes through tax year 2013, resulting in no significant adjustments. No significant amounts of accrued interest or penalties were impacted by the adjustments through tax year 2013. All tax years after 2014 remain open to examination. The Company is subject to examination for its state tax returns for years 2014 and forward, with the exception of certain net operating losses and credit carryforwards originating in years prior to 2014 that remain subject to adjustment.