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Income Taxes

12 Months Ended

Dec. 31, 2019

12. Income Taxes

The Company has elected to be taxed as a REIT effective January 1, 2013, pursuant to the U.S. Internal Revenue Code of 1986, as amended. As a REIT, generally the Company will not be subject to federal corporate income taxes on ordinary taxable income and capital gains income from real estate investments that it distributes to its stockholders. The Company will continue to be required to pay federal and state corporate income taxes on earnings of its taxable REIT subsidiaries (“TRSs”).

The income tax (provision) benefit for continuing operations consists of the following (amounts in thousands):


	2019		2018		2017
CURRENT:
Federal	$	(120)	$	(118)	$	(1,107)
State		(3,941)		(1,437)		(2,375)
Total current provision		(4,061)		(1,555)		(3,482)
DEFERRED:
Federal		(13,715)		(7,271)		32,308
State		(699)		(2,919)		18,299
Effect of federal tax law change		—		—		2,030
Total deferred (provision) benefit		(14,414)		(10,190)		52,637
Total (provision) benefit for income taxes	$	(18,475)	$	(11,745)	$	49,155

On December 22, 2017, the TCJA was enacted and included a reduction to the U.S. federal corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. At December 31, 2017, the Company had not completed its accounting for the tax effects of the enactment; however, based on a reasonable estimate, the Company recorded a non-cash tax benefit of $2.0 million during the fourth quarter of 2017 to reflect the impact of this rate change on existing deferred tax amounts, which is included above as a component of the benefit for income taxes for 2017. During 2018, the Company completed its accounting for all of the enactment-date income tax effects of the TCJA and made no adjustments to the provisional amounts recorded at December 31, 2017.

The Company evaluates its deferred tax assets each reporting period to determine if it is more likely than not that those assets will be realized or if a valuation allowance is needed. In the fourth quarter of 2017, due to projected future taxable income of its TRSs driven by fourth quarter 2017 modifications to internal hotel leases, the Company determined that the release of a significant portion of its federal and state valuation allowance was appropriate. This release of valuation allowance totaling $53.4 million was the primary factor for the income tax benefit for 2017 and is included as a component of the benefit for income taxes for 2017.

The Company is required to distribute at least 90% of its annual taxable income, excluding net capital gains, to its stockholders in order to maintain its qualification as a REIT. The taxability of distributions to stockholders is determined by the Company’s earnings and profits, which differs from net income reported for financial reporting purposes. The estimated taxability of cash distributions to common shareholders is as follows (per common share):


	2019		2018		2017
Ordinary income	$	2.55	$	2.67	$	2.97
Capital gains		0.05		0.05		0.03
Return of capital		0.88		—		0.15
	$	3.48	$	2.72	$	3.15

The differences between the income tax provision calculated at the statutory U.S. federal income tax rate of 21% for 2019 and 2018 and 35% for 2017 and the actual income tax (provision) benefit recorded for continuing operations are as follows (amounts in thousands):


	2019		2018		2017
Statutory federal income tax provision	$	(30,822)	$	(58,047)	$	(44,431)
Adjustment for nontaxable income of the REIT		15,803		50,075		38,272
State taxes (net of federal tax benefit)		(4,596)		(4,268)		(1,317)
Permanent share-based compensation adjustment		1,257		821		1,446
Other permanent items		(377)		(46)		(251)
Change in federal valuation allowance		556		46		36,156
Change in state valuation allowance (net of federal tax benefit)		(44)		(88)		17,241
Effect of federal tax law change		—		—		2,030
Other		(252)		(238)		9
	$	(18,475)	$	(11,745)	$	49,155

Significant components of the Company’s deferred tax assets and liabilities at December 31 are as follows (amounts in thousands):


	2019		2018
DEFERRED TAX ASSETS:
Accounting reserves and accruals	$	15,931	$	14,594
Defined benefit plan		4,194		4,620
Deferred management rights proceeds		43,420		44,189
Federal and State net operating loss carryforwards		45,794		59,382
Tax credits and other carryforwards		499		870
Other assets		4,605		4,427
Total deferred tax assets		114,443		128,082
Valuation allowance		(12,387)		(14,210)
Total deferred tax assets, net of valuation allowance		102,056		113,872
DEFERRED TAX LIABILITIES:
Property and equipment, net		61,970		57,931
Investment in joint ventures		12,639		14,135
Goodwill and other intangibles		717		478
Other liabilities		771		771
Total deferred tax liabilities		76,097		73,315
Net deferred tax assets	$	25,959	$	40,557

Federal net operating loss carryforwards at December 31, 2019 totaled $114.5 million, resulting in a deferred tax benefit of $24.0 million, which will begin to expire in 2033. The use of certain federal net operating losses, credits and other deferred tax assets are limited to the Company’s future taxable earnings. As a result, a valuation allowance has been provided for certain federal deferred tax assets. The valuation allowance related to federal deferred tax assets decreased $0.5 million, $0 million and $60.6 million in 2019, 2018 and 2017, respectively. State net operating loss carryforwards at December 31, 2019 totaled $393.3 million, resulting in a deferred tax benefit of $21.8 million, which will expire between 2020 and 2039. The use of certain state net operating losses, credits and other state deferred tax assets are limited to the future taxable earnings of separate legal entities. As a result, a valuation allowance has been provided for certain state deferred tax assets, including loss carryforwards. The valuation allowance related to state deferred tax assets decreased $1.3 million, $0.4 million and $13.4 million in 2019, 2018 and 2017, respectively. The total 2017 decrease in federal and state valuation allowance of $74.0 million differs from the amounts shown in the rate reconciliation of $53.4 million due primarily to the effects of the rate change enacted as a result of the TCJA, which resulted in a reduction in deferred tax assets and liabilities offset by a reduction in the corresponding valuation allowance. Management believes that it is more likely than not that the results of operations will generate sufficient taxable income to realize the deferred tax assets after giving consideration to the valuation allowance.

The Company has concluded IRS examinations of the TRS through the 2015 tax year. For federal income tax purposes and substantially all the states with which the Company has nexus, the statute of limitations has expired through 2015. However, the Company has state net operating loss carryforwards from closed years, which could be adjusted upon audit. The Company is routinely subject to other various jurisdictional income tax audits; however, there were no outstanding state or local audits at December 31, 2019.

At December 31, 2019 and 2018, the Company had no accruals for unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense. At December 31, 2019 and 2018, the Company has accrued no interest or penalties related to uncertain tax positions.