Income Taxes

6 Months Ended

Jun. 30, 2020

INCOME TAXES


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Provision for income taxes	$	790	$	639	$	1,137	$	1,335

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. MTI, a wholly owned subsidiary of the Partnership, is subject to income taxes due to its corporate structure. Total income tax expense of $590 and $937, related to the operation of the subsidiary, for the three and six months ended June 30, 2020, resulted in an effective income tax rate of (472)% and 98.32%, respectively. Total income tax expense of $429 and $877, related to the operation of the subsidiary, for the three and six months ended June 30, 2019, respectively, resulted in an effective income tax rate ("ETR") of 26.3% and 25.49%, respectively.

The following items caused the quarterly and year-to-date ETR to be significantly different from the historical annual effective income tax rate ("AETR"):

•Pretax loss recorded for the three months ended June 30, 2020 due to the economic downturn resulting from the coronavirus pandemic.

•The Partnership has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the AETR for the full year to "ordinary" income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. The Partnership has used a discrete ETR method to calculate taxes for the three and six month periods ended June 30, 2020. The Partnership determined that since small changes in estimated "ordinary" income would result in significant changes in the estimated AETR, the historical method would not provide a reliable estimate for the three and six month periods ended June 30, 2020.

•During the second quarter and six months ended June 30, 2020, the Partnership recorded an income tax expense of approximately $341 related to the filing of the 2019 Federal income tax return, which decreased the quarter-to-date ETR by 272.8% and increased the year-to-date ETR by 35.78%.

The Coronavirus Aid, Relief, and Economic Security ("CARES") Act was enacted on March 27, 2020, in response to the market volatility and instability resulting from the COVID-19 pandemic, and includes changes to various income tax provisions including, but not limited to, providing for a five-year carryback of net operating losses generated in taxable years beginning after December 31, 2017, and before January 1, 2021, suspension of the 80% taxable income limitation for net operating losses generated after December 31, 2017, and before January 1, 2021, and relaxation of the limitation of adjusted taxable income as determined under Internal Revenue Code Section 163(j) from 30% to 50% when determining the deduction for business interest expense for 2019 and 2020. Since, prior to its acquisition by the Partnership, MTI was a Qualified Subchapter S subsidiary ("QSub") of Martin Resource Management Corporation, it is precluded from carrying back net operating losses to its QSub taxable years. The other applicable provisions of the CARES Act have no material impact on the AETR, deferred taxes, or valuation allowances.

A current federal income tax expense (benefit) of $(307) and $(174), related to the operation of the subsidiary, were recorded for the three and six months ended June 30, 2020, respectively, and $(78) and $218, for the three and six months ended June 30, 2019, respectively. A current state income tax expense (benefit) of $164 and $93, related to the operation of the subsidiary, were recorded for the three and six months ended June 30, 2020, respectively, and $20 and $(198) for the three and six months ended June 30, 2019, respectively.

With respect to MTI, income taxes are accounted for under the asset and liability method pursuant to the provisions of ASC 740 related to income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A deferred tax expense related to the MTI temporary differences of $733 and $487 was recorded for the three months ended June 30, 2020 and 2019, respectively, and $1,018 and $856 was recorded for the six months ended June 30, 2020 and 2019, respectively. A deferred tax asset of $22,404 and $23,422, related to the cumulative book and tax temporary differences, existed at June 30, 2020 and December 31, 2019, respectively.

All income tax positions taken for all open years are more likely than not to be sustained based upon their technical merit under applicable tax laws.

- Definition

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.

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