Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

Components of the provision for income taxes and the income to which it relates for the years ended December 31, 2019, 2018 and 2017 consist of the following (in thousands):



	Year Ended December 31,
	2019		2018			2017
Income before income taxes ⁽¹⁾:
Domestic	$	145,570	$	125,056		$	93,365
Foreign	79,041		80,253			78,947
Income before income taxes	$	224,611	$	205,309		$	172,312

Current income taxes:
Federal⁽²⁾	$	26,624	$	18,751		$	15,995
Foreign	21,904		23,231			23,340
State and local	2,553		2,506			968
Current provision for income taxes	51,081		44,488			40,303

Deferred provision (benefit) for income taxes:
Federal ⁽³⁾	7,498		7,621			(11,509		)
Foreign	863		(566		)	(1,079		)
State and local	551		560			705
Total deferred provision (benefit) for income taxes	8,912		7,615			(11,883		)

Provision for income taxes	$	59,993	$	52,103		$	28,420


⁽¹⁾	Includes the allocation of certain administrative expenses and intercompany payments, such as royalties and interest, between domestic and foreign subsidiaries.

⁽²⁾

The year ended December 31, 2017 includes a provisional $1.9 million income tax expense relating to the one-time mandatory tax on previously deferred earnings of the Company’s foreign subsidiaries as a result of the Tax Cuts and Jobs Act (“Tax Act”). The year ended December 31, 2018 includes a $1.5 million income tax benefit as a result of the Company’s finalization of certain estimates and tax positions used to record the 2017 provisional tax expense. The years ended December 31, 2019 and 2018 include $1.1 million and $0.8 million of income tax expense, respectively, relating to the global intangible low-taxed income (GILTI) inclusion.

⁽³⁾

The year ended December 31, 2017 includes a provisional $29.2 million income tax benefit resulting from the remeasurement of the Company’s domestic net deferred tax liabilities based on the lower corporate income tax rate as a result of the Tax Act. During 2018, the Company finalized certain estimates and tax positions used in the analysis of the 2017 provisional tax benefit resulting in no adjustments.

The Company does not include foreign subsidiaries in its consolidated U.S. federal income tax return, and it is the Company’s intent to indefinitely reinvest the earnings of these subsidiaries outside the U.S. At December 31, 2019, the cumulative amount of indefinitely reinvested earnings of foreign subsidiaries was $256.5 million, which would not be subject to additional U.S. taxes if the earnings were repatriated into the U.S.

The principal deferred tax assets and liabilities consist of the following (in thousands):



	As of December 31,
	2019			2018
Deferred tax assets:
Property and equipment	$	10,407		$	8,073
Accrued fees on forfeited pawn loans	8,006			7,489
Deferred cost of goods sold deduction	5,721			3,494
Accrued compensation and employee benefits	2,163			1,912
State net operating losses	6,012			6,430
Other	4,428			6,027
Total deferred tax assets	36,737			33,425

Deferred tax liabilities:
Intangible assets	71,814			66,734
Net operating lease asset	5,819			—
Property and equipment	—			1,668
Other	2,812			1,807
Total deferred tax liabilities	80,445			70,209

Net deferred tax liabilities before valuation allowance	(43,708		)	(36,784		)
Valuation allowance	(6,012		)	(6,430		)
Net deferred tax liabilities	$	(49,720	)	$	(43,214	)

Reported as:
Deferred tax assets	$	11,711		$	11,640
Deferred tax liabilities	(61,431		)	(54,854		)
Net deferred tax liabilities	$	(49,720	)	$	(43,214	)

The Company has a valuation allowance of $6.0 million and $6.4 million as of December 31, 2019 and 2018, respectively, related to the deferred tax assets associated with its state net operating losses. The Company has evaluated the nature and timing of its other deferred tax assets and concluded that no additional valuation allowance is necessary.

The following is a reconciliation of income taxes calculated at the U.S. federal statutory rate to the provision for income taxes (dollars in thousands):



	Year Ended December 31,
	2019			2018			2017
U.S. federal statutory rate	21		%	21		%	35		%

Tax at the U.S. federal statutory rate	$	47,168		$	43,115		$	60,309
State income tax, net of federal tax benefit of $652, $644 and $586, respectively	2,452			2,422			1,087
Net incremental income tax expense (benefit) from foreign earnings ⁽¹⁾	6,314			6,031			(5,442		)
Net tax benefit resulting from the enactment of the Tax Act	—			(1,494		)	(27,269		)
Non-deductible compensation expense	2,074			1,827			—
Other taxes and adjustments, net	1,985			202			(265		)
Provision for income taxes	$	59,993		$	52,103		$	28,420

Effective tax rate	26.7		%	25.4		%	16.5		%


⁽¹⁾	Includes a $2.3 million, $3.3 million and $4.0 million foreign permanent tax benefit related to an inflation index adjustment allowed under Mexico tax law for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company’s foreign operating subsidiaries are owned by a wholly-owned subsidiary located in the Netherlands. The foreign operating subsidiaries are subject to their respective foreign statutory rates, which differ from the U.S. federal statutory rate. The statutory tax rates in Mexico, Guatemala, El Salvador and Colombia are generally 30%, 25%, 30% and 33%, respectively. The statutory tax rate in the Netherlands is 0% on eligible dividends received from its foreign subsidiaries.

The Company reviews the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Interest and penalties related to income tax liabilities that could arise would be classified as interest expense in the Company’s consolidated statements of income.

As of December 31, 2019 and 2018, the Company had no unrecognized tax benefits and, therefore, the Company did not have a liability for accrued interest and penalties and no such interest or penalties were incurred for the years ended December 31, 2019, 2018 and 2017.

The Company files federal income tax returns in the U.S., Mexico, Guatemala, El Salvador, Colombia and the Netherlands, as well as multiple state and local income tax returns in the U.S. The Company’s U.S. federal returns are not subject to examination for tax years prior to 2016. The Company’s U.S. state income tax returns are not subject to examination for the tax years prior to 2016 with the exception of six states, which are not subject to examination for tax years prior to 2015. With respect to federal tax returns in Mexico, Guatemala, El Salvador, Colombia and the Netherlands, the tax years prior to 2014 are closed to examination. There are no state income taxes in Mexico, Guatemala, El Salvador, Colombia or the Netherlands.