Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

The components of income tax expense (benefit) from operations for the years ended December 31, 2019, 2018 and 2017 are as follows:



	2019		2018		2017
Current:
Federal	$	174	$	—	$	—
State	366		369		314
	540		369		314
Deferred:
Federal	882		—		—
State	478		208		(156		)
	1,360		208		(156		)
Total income tax expense	$	1,900	$	577	$	158

The operations of a partnership are generally not subject to income taxes, except for Texas margin tax, because its income is taxed directly to its partners. The Texas margin tax is considered a state income tax and is included in income tax expense on the Consolidated Statements of Operations. Since the tax base on the Texas margin tax is derived from an income-based measure, the margin tax is construed as income tax, and therefore, the recognition of deferred taxes applies to the margin tax. The impact on deferred taxes as a result of this provision is immaterial. State income taxes attributable to the Texas margin tax relating to the operation of the Partnership of $458, $369 and $352 were recorded in income tax expense for the years ended December 31, 2019, 2018 and 2017, respectively.

Prior to the acquisition of MTI on January 2, 2019, MTI was a QSub of Martin Resource Management Corporation, a qualifying S Corporation. A QSub is not treated as a separate corporation for federal income tax purposes as it is deemed liquidated into its S Corporation parent. S Corporations are generally not subject to income taxes because income and losses flow through to shareholders and are reported on their individual returns. State income taxes attributable to the pre-acquisition QSub of $0 and ($38) were recorded in income tax expense for the years ended December 31, 2018 and 2017, respectively. The principal component of the difference between the expected state tax expense and actual state tax expense relates to taxes incurred in states that do not recognize S corporation status.

Subsequent to the acquisition, the QSub election terminated resulting in MTI being taxed as a stand-alone C Corporation. Total income tax expense relating to the operation of the subsidiary of $1,442 was recorded in income tax expense for the year ended December 31, 2019.

The income tax expense from the subsidiary operations for the year ended December 31, 2019 differs from the "expected" tax expense (computed by applying the federal corporate rate of 21% to income before income taxes) as follows:



	2019
"Expected" tax expense	$	1,116
Increase in income taxes resulting from:
State income taxes, net of federal income tax expense	235
Other non-deductible items	19
Other, net	72
Actual tax expense	$	1,442

Cash paid for income taxes was $515, $431 and $799 for the years ended December 31, 2019, 2018 and 2017, respectively.

Deferred taxes are the result of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Significant components of deferred tax assets and liabilities are as follows:



	2019			2018
Deferred tax assets:
Bad debt reserves	$	64		$	—
Goodwill and intangibles	15,245			—
Employee benefits	500			—
Interest expense	658			—
Tax loss carryforwards	12,879			—
Other	147			—
Total deferred tax assets	29,493			—

Deferred tax liabilities:
Property and equipment	(6,069		)	—
Operating leases	(2		)	—
Other	—			—
Total deferred tax liabilities	(6,071		)	—

Net deferred tax assets	$	23,422		$	—

Deferred tax assets are regularly reviewed for recoverability and a valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon future taxable income during the periods in which those temporary differences become deductible. In assessing the need for a valuation allowance, management considers all available positive and negative evidence, including the ability to carryback operating losses to prior periods and the expected future utilization of net operating loss carryforwards, the reversal of deferred tax liabilities, projected taxable income, and tax-planning strategies. On the basis of these considerations, as of December 31, 2019, management believes it is more likely than not that the subsidiary will realize the benefit of the existing deferred tax assets.

"Income taxes payable" includes a state income tax liability related to the operation of the Partnership of $298 and $445 for the years ended December 31, 2019 and 2018, respectively. Also included in "Income taxes payable" is a federal income tax liability related to the operation of the subsidiary of $174 and $0 for the years ended December 31, 2019 and 2018, respectively. State income taxes refundable related to the operation of the subsidiary of $117 and $127 for the years ended December 31, 2019 and 2018, respectively, are included in "Other current assets".

At December 31, 2019, MTI had net operating loss carryforwards for income tax purposes of approximately $73,801 related to federal and state taxes. Of these net operating loss carryforwards, approximately $14,080 will expire between 2027 and 2039 and approximately $59,721 may be carried forward indefinitely.

The operations of the Partnership are generally not subject to income taxes, except as discussed above, because its income is taxed directly to its partners. The net tax basis in the Partnership's assets and liabilities is greater (less) than the

reported amounts on the financial statements by approximately $78,649 and $(121,775) as of December 31, 2019 and December 31, 2018, respectively.

As of December 31, 2019, the tax years that remain open to assessment are 2016-2018.