16. Income Taxes

On December 22, 2017, the President of the United States signed into law P.L. 115-97, commonly referred to as the U.S. Tax Cuts and Jobs Act (the “Act”). The Act modifies several provisions of the Internal Revenue Code related to corporations, including a permanent corporate income tax rate reduction from 35% to 21%, effective January 1, 2018. The Act also significantly changes U.S. international tax laws for tax years beginning after December 31, 2017 and requires a one-time mandatory deemed repatriation of all cumulative post-1986 foreign earnings and profits of a U.S. shareholder’s foreign subsidiaries effective in 2017, the year of enactment.

As a result of the enacted legislation, we have assessed the impact of the changes to the U.S. income tax system, including but not limited to, adjustments to U.S. current and deferred taxes associated with the mandatory deemed repatriation of foreign undistributed earnings. We have estimated that our U.S. federal and state tax liability as a result of the transition tax on repatriation will be $54.8 million on a deemed repatriation of $992.7 million of foreign earnings and profits. The remeasurement of certain deferred tax assets and liabilities due to the corporate income tax rate reduction is estimated to provide an income tax benefit of $301.6 million. The total benefit recorded in 2017 as a result of the enactment of the Act was $243.4 million, consisting primarily of the deemed repatriation and revaluation of U.S. deferreds noted previously.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the Act enactment date for companies to complete such income tax accounting under ASC 740. In accordance with SAB 118, we have analyzed and computed the U.S. tax impact of the Act to the best of our ability with the information available at this time and consider our conclusions to be reasonable estimates. Additional information gathering and analysis will be required to refine our detailed computations. Any subsequent adjustments to our provisional estimates will be recorded to current tax expense in the quarter of 2018 when our analysis is considered final and complete.

We have considered and analyzed the applicability of any new international tax provisions of the Act effective for tax years after December 31, 2017. The global intangible low-taxed income (“GILTI”) provisions of the Act require a U.S. federal income tax return inclusion of annual foreign earnings in excess of a predetermined return on tangible assets of foreign corporations. FASB guidance released in relation to international tax provisions effective after December 31, 2017 considers multiple methods reasonable for income tax accounting purposes. We believe we will be subject to the GILTI provisions beginning in 2018 due to expense allocations required by the U.S. foreign tax credit rules. During the first quarter of 2018, we will adopt the method of accounting for GILTI inclusions as a period expense and therefore have not accrued any deferred taxes in relation to this provision in the 2017 consolidated financial statements.

Income from continuing operations before income taxes by geographic region was as follows:


	Year Ended December 31,
	2017		2016		2015
U.S.	$	375.4	$	316.7	$	309.4
Non-U.S.		172.8		191.4		182.5
Income from continuing operations before income taxes	$	548.2	$	508.1	$	491.9

Income taxes relating to income from continuing operations consisted of the following:


	Year Ended December 31,
	2017		2016		2015
Current:
Federal	$	(3.5)	$	(47.2)	$	61.8
State and local		4.2		4.7		11.5
Foreign		43.2		41.0		40.1
Total current	$	43.9	$	(1.5)	$	113.4
Deferred:
Federal		(150.5)		140.6		40.1
State and local		47.2		22.3		8.4
Foreign		(5.4)		(0.7)		(3.9)
Total deferred	$	(108.7)	$	162.2	$	44.6
Income taxes	$	(64.8)	$	160.7	$	158.0

Income taxes relating to income from continuing operations varied from the U.S. federal statutory income tax rate due to the following:


	Year Ended December 31,
	2017		2016		2015
Income taxes at federal statutory rate of 35%	$	191.9	$	177.8	$	172.2
State and local income taxes, net of federal taxes		13.7		14.7		13.3
Non-U.S. income taxed at other rates		(25.2)		(26.8)		(27.4)
Revaluation of U.S. deferreds		(301.6)		—		—
Deemed mandatory repatriation		54.8		—		—
Other		1.6		(5.0)		(0.1)
Income taxes	$	(64.8)	$	160.7	$	158.0

The components of deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows:


	December 31,
	2017		2016
Deferred Tax Assets
Accrued liabilities	$	53.6	$	71.4
Net operating loss and credit carryforwards		131.0		32.4
Other		24.0		18.7
Total deferred tax assets		208.6		122.5
Valuation allowance		(36.6)		(17.2)
Net deferred tax assets	$	172.0	$	105.3
Deferred Tax Liabilities
Depreciation and amortization		(178.1)		(210.9)
Partnership investments		(469.5)		(448.1)
Convertible notes		(1.5)		(5.0)
Other		(4.4)		(5.9)
Total deferred tax liabilities		(653.5)		(669.9)
Net deferred tax liabilities	$	(481.5)	$	(564.6)

As a result of the deemed mandatory repatriation provisions in the Act discussed previously, we included an estimated $992.7 million of undistributed earnings in income subject to U.S. tax at reduced tax rates. We are not permanently reinvested to the extent of these previously taxed earnings, which may be distributed in the future. As of December 31, 2017, we have not provided U.S. federal income taxes on a total temporary difference of $138.7 million related to the excess of financial reporting basis over tax basis in our non-U.S. subsidiaries, as it is our position that we are permanently reinvested for this basis difference. Our U.K. subsidiary remains permanently reinvested in its non-U.K. subsidiaries. Therefore, we have not recognized any additional deferred tax liabilities related to our investments in non-U.S. subsidiaries.

As of December 31, 2017, we have $504.7 million of state net operating loss carryforwards in the U.S. that expire at various dates beginning in 2018 through 2037, U.S. federal and state credit carryforwards of $7.8 million that will not expire, a U.S. foreign tax credit carryforward of $81.7 million that will expire in 2027, U.K. capital loss carryforwards of $5.1 million that will not expire, German net operating loss carryforwards of $27.0 million that will not expire, Australian net operating loss carryforwards of $15.3 million that will not expire, Canadian net operating loss carryforwards of $0.5 million that will not expire, New Zealand net operating loss carryforwards of $2.1 million that will not expire, and Italian net operating loss carryforwards of $0.1 million that will not expire. The Company generated $248.5 million of state net operating loss carryforwards in the U.S. in 2017.

A valuation allowance of $1.0 million has been recorded against the state net operating loss carryforwards in the U.S., a valuation allowance of $0.4 million has been recorded against the state credit carryforwards in the U.S., and a valuation allowance of $17.5 million has been recorded against the U.S. foreign tax credit carryforward as of December 31, 2017. A valuation allowance of $9.6 million has been recorded against German net operating losses and other deferred tax assets as of December 31, 2017. A valuation allowance of $8.1 million has been recorded against U.K. deferred tax assets related to buildings as of December 31, 2017.

Generally accepted accounting principles relating to uncertain income tax positions prescribe a minimum recognition threshold a tax position is required to meet before being recognized, and provides guidance on the derecognition, measurement, classification, and disclosure relating to income taxes. The movement in uncertain tax positions for the years ended December 31, 2017, 2016, and 2015 were as follows:


	Year Ended December 31,
	2017		2016		2015
Uncertain tax positions — January 1	$	3.4	$	12.8	$	13.1
Gross increase — tax position in prior periods		0.2		0.2		0.2
Gross decrease — tax position in prior periods		(0.1)		(0.3)		—
Gross increase — current period tax position		—		—		—
Settlements		—		(7.8)		—
Lapse in statute of limitations		—		—		—
Foreign exchange		—		(1.5)		(0.5)
Uncertain tax positions — December 31	$	3.5	$	3.4	$	12.8

We have elected to include interest and penalties in our income tax expense. The total interest and penalties included within uncertain tax positions at December 31, 2017 was $2.2 million. We do not expect a significant change to the amount of uncertain tax positions within the next twelve months. Our U.S. federal returns remain open to examination for 2014 through 2016 and various U.S. state jurisdictions are open for periods ranging from 2010 through 2016. The portion of the total amount of uncertain tax positions as of December 31, 2017 that would, if recognized, impact the effective tax rate was $3.5 million.

We have classified our tax reserves as a long‑term obligation on the basis that management does not expect to make payments relating to those reserves within the next twelve months.

As a result of our acquisition of the remaining ownership interests of Premier Truck Group in April 2016, bringing our total ownership interest to 100%, the partnership entity was liquidated, thereby yielding an adjustment to the tax basis of this investment. The result was an elimination of $5.1 million of deferred tax liabilities, which reduced income tax expense by the same amount in 2016.