Income Taxes

The U.S. federal statutory tax rates for the nine-month periods ended December 31, 2018 and 2017 were 21% and 31.5%, respectively. The Tax Cuts and Jobs Act (the Tax Act) enacted in December 2017 reduced the corporate income tax rate effective January 1, 2018. The differences that caused our effective income tax rates to differ from the U.S. federal statutory rates for the nine-month periods ended December 31, 2018 and 2017, respectively, were as follows:



	Nine Months Ended December 31,
	2018			2017
	(in millions)
Income tax expense at the federal statutory rate	$	(61	)	$	(205	)
Effect of:
State income taxes, net of federal income tax effect	(40		)	(57		)
State law changes, net of federal income tax effect	62			(28		)
Increase deferred tax liability for organizational restructuring	(12		)	—
Increase deferred tax liability for business activity changes	—			(69		)
Credit for increasing research activities	13			11
Change in federal and state valuation allowance	12			(64		)
Increase in liability for unrecognized tax benefits	(6		)	(20		)
Tax benefit from the Tax Act	—			7,090
Non-deductible penalties	(29		)	—
Other, net	5			4
Income tax (expense) benefit	$	(56	)	$	6,662
Effective income tax rate	19.2		%	(1,021.8		)%

Income tax expense of $56 million for the nine-month period ended December 31, 2018 represented a consolidated effective tax rate of 19%. During the period, we recognized a $62 million tax benefit for the impact of state law changes enacted during the period, partially offset by a $12 million tax expense attributable to organizational restructuring. These adjustments were primarily driven by the change in carrying value of our deferred tax assets and liabilities on temporary differences. In addition, the rate was impacted by non-deductible penalties related to litigation with the State of New York that was settled during the period.

Income tax benefit of $6.7 billion for the nine-month period ended December 31, 2017 represented a consolidated effective tax rate of (1,022)%. Income tax benefit was primarily attributable to the impact of the Tax Act, partially offset by taxable temporary differences from the tax amortization of FCC licenses and tax expense on pre-tax gains from spectrum license exchanges during the period. We also increased our deferred state income tax liability by $69 million for changes in business activities causing us to become subject to income tax in additional tax jurisdictions. This resulted in a change in the measurement of the carrying value of our deferred tax liability on temporary differences, primarily FCC licenses.

We continue to maintain a valuation allowance on certain deferred tax assets, primarily net operating losses with definite-life carry forward periods. Factors that could change our judgment as to our ability to realize these deferred tax assets, and therefore, reduce our valuation allowance, include the existence of future taxable income generated by temporary differences reversing in the net operating loss carryforward periods and income from continuing operations.

The Tax Act, enacted in December 2017, made broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (3) eliminating corporate alternative minimum tax; and (4) new tax rules related to foreign operations. In accordance with ASC Topic 740, Income Taxes and Staff Accounting Bulletin No. 118 (SAB 118), we made a reasonable estimate of the impacts of the Tax Act and recorded the estimate in the period ended December 31, 2017. SAB 118 allows for a measurement period not to extend beyond one year from the date of enactment to complete the accounting for the impacts of the Tax Act. As of December 31, 2018, our analysis under SAB 118 is complete, including, but not limited to, the re-measurement of deferred tax assets and liabilities. Our analysis resulted in no material adjustments to the provisional estimate recorded in the period ended December 31, 2017.

As of December 31, 2018 and March 31, 2018, we maintained unrecognized tax benefits of $233 million and $239 million, respectively. Cash paid for income taxes, net was $62 million and $55 million for the nine-month periods ended December 31, 2018 and 2017, respectively.