|12 Months Ended|
Dec. 31, 2018
|Income Tax Disclosure [Abstract]|
13. INCOME TAXES
The Company’s income tax provision consisted of the following:
The primary factors causing income tax expense to be different than the federal statutory rate for 2018, 2017 and 2016 are as follows:
Other includes the release of deferred tax liabilities, tax credits, valuation allowance, and other immaterial adjustments.
On December 22, 2017 the Tax Cuts and Jobs Act (TCJA) was signed into law. The TCJA reduced the corporate tax rate from 35% to 21% and made numerous other tax law changes. In 2017, the SEC issued Staff Accounting Bulletin No. 118 which permitted the recording of provisional amounts related to the impact of the TCJA during a measurement period not to exceed one year. A provisional amount based on reasonable estimates was made with respect to the tax implications associated with the deemed repatriated earnings on foreign subsidiaries based on the initial analysis of the TCJA. Certain tax effects of the TCJA were recognized in year ended December 31, 2017 resulting in the recording of $11.6 million of additional tax expense. The additional tax of $11.6 million related to the following components: $8 million related to the imposition of a tax on deemed repatriated earnings of foreign subsidiaries due to implementation of a territorial tax system, $2.9 million related to re-measurement of deferred tax assets to the 21% tax rate, and $0.7 million related to reductions in tax benefits on stock compensation. During 2018 the Company completed the analysis the earnings and profits of foreign investments. This resulted in the recognition at year ended December 31, 2018 of an additional $1.2 million related to the imposition of a tax on deemed repatriated earnings of foreign subsidiaries. The Company has elected to include the global intangible low-taxed income (GILTI) as part of tax expense in the year incurred.
The Provision for Income Taxes resulted in an effective tax rate of 25.4% on Income Before Income Taxes for the year ended December 31, 2018. The effective rate differs from the annual federal statutory rate primarily because of state and foreign income taxes and adjustments due to the TCJA.
For 2017 and 2016 the effective tax rate was 39.2% and 35.8%, respectively. The effective income tax rate differs from the annual federal statutory tax rate primarily because of state and foreign income taxes, adjustments due to the TCJA partially offset by tax benefits associated with restricted stock, and the increase of available foreign tax credits.
During 2018, 2017 and 2016, the Company paid income taxes of $77.3 million, $90.7 million and $88.8 million, respectively, net of refunds.
Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2018 and 2017 are as follows:
Analysis of the valuation allowance:
As of December 31, 2018, the Company has net operating loss carryforwards for foreign and state income tax purposes of approximately $111.6 million, which will be available to offset future taxable income. If not used, these carryforwards will expire between 2019 and 2031. Management believes that it is unlikely to be able to utilize approximately $0.4 million of foreign net operating losses before they expire and has included a valuation allowance for the effect of these unrealizable operating loss carryforwards. The valuation allowance increased by $0.1 million due to foreign net operating leases.
Earnings from continuing operations before income tax included foreign income of $22.7 million in 2018, $22.1 million in 2017 and $6.4 million in 2016. The Company’s international business is expanding and we intend to continue to grow the business in foreign markets in the future through reinvestment of foreign deposits and future earnings as well as acquisition of unrelated companies. Repatriation of cash from the Company’s foreign subsidiaries is not part of the Company’s current business plan.
The total amount of unrecognized tax benefits at December 31, 2018 that, if recognized, would affect the effective tax rate is $0.0 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. In addition, the Company has subsidiaries in various state and international jurisdictions that are currently under audit for years ranging from 2012 through 2015. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S., income tax examinations for years prior to 2012.
It is reasonably possible that the amount of unrecognized tax benefits will decrease in the next 12 months.
The Company’s policy is to record interest and penalties related to income tax matters in income tax expense. Accrued interest and penalties were $1.0 million and $0.9 million as of December 31, 2018 and December 31, 2017, respectively. During 2018 the Company recognized interest and penalties of $0.1 million.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef