INCOME TAXES

As a REIT, the Company is generally not subject to federal income tax with respect to that portion of its income which is distributed annually to its stockholders. However, the Company has elected to treat one of its corporate subsidiaries, Extra Space Management, Inc., as a taxable REIT subsidiary. In general, the Company’s TRS may perform additional services for tenants and generally may engage in any real estate or non-real estate related business. A TRS is subject to federal corporate income tax. The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes.” Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. The Company has elected to use the Tax-Law-Ordering approach to determine when excess tax benefits will be realized.

The income tax provision for the years ended December 31, 2017, 2016 and 2015, is comprised of the following components:



	For the Year Ended December 31, 2017
	Federal			State			Total
Current expense	$	5,677		$	1,662		$	7,339
Tax credits/true-up	(5,573		)	(383		)	(5,956		)
Change in deferred expense	1,700			542			2,242
Total tax expense	$	1,804		$	1,821		$	3,625



	For the Year Ended December 31, 2016
	Federal			State			Total
Current expense	$	14,627		$	2,368		$	16,995
Tax credits/true-up	(312		)	—			(312		)
Change in deferred benefit	(369		)	(467		)	(836		)
Total tax expense	$	13,946		$	1,901		$	15,847



	For the Year Ended December 31, 2015
	Federal		State			Total
Current expense	$	3,736	$	1,640		$	5,376
Tax credits/true-up	274		—			274
Change in deferred expense (benefit)	7,016		(1,518		)	5,498
Total tax expense	$	11,026	$	122		$	11,148

A reconciliation of the statutory income tax provisions to the effective income tax provisions for the periods indicated is as follows:



	For the Year Ended December 31,
	2017					2016					2015
Expected tax at statutory rate	$	186,274		35.0	%	$	144,708		35.0	%	$	77,151		35.0	%
Non-taxable REIT income	(170,811		)	(32.1	)%	(131,112		)	(31.7	)%	(67,084		)	(30.4	)%
State and local tax expense - net of federal benefit	2,306			0.4	%	2,399			0.6	%	1,249			0.6	%
Change in valuation allowance	159			—	%	(845		)	(0.2	)%	(624		)	(0.3	)%
Tax credits/true-up	(5,956		)	(1.1	)%	(312		)	(0.1	)%	274			0.1	%
Remeasurement of deferred balances	(8,460		)	(1.6	)%	—			—	%	—			—	%
Miscellaneous	113			—	%	1,009			0.2	%	182			0.1	%
Total provision	$	3,625		0.6	%	$	15,847		3.8	%	$	11,148		5.1	%

The major sources of temporary differences stated at their deferred tax effects are as follows:



	December 31, 2017			December 31, 2016
Deferred tax liabilities:
Fixed assets	$	(15,271	)	$	(16,488	)
Other	(108		)	(201		)
State deferred taxes	(2,822		)	(1,242		)
Total deferred tax liabilities	(18,201		)	(17,931		)

Deferred tax assets:
Captive insurance subsidiary	252			413
Accrued liabilities	873			2,741
Stock compensation	1,287			1,713
Solar credit	43			—
Other	57			1,548
SmartStop TRS	219			365
State deferred taxes	7,802			6,078
Total deferred tax assets	10,533			12,858

Valuation allowance	(4,924		)	(4,765		)

Net deferred income tax liabilities	$	(12,592	)	$	(9,838	)

The state income tax net operating losses expire between 2018 and 2035. The valuation allowance is associated with the state income tax net operating losses. The tax years 2013 through 2016 remain open related to the state returns, and 2014 through 2016 for the federal returns.

Federal tax reform legislation that was enacted on December 22, 2017 (commonly known as the Tax Cuts and Jobs Act) (the “2017 Tax Legislation”) made substantial changes to the Internal Revenue Code. Among those changes are a reduction in the U.S. federal corporate tax rate from the previous rate of 35% to 21%, the elimination or modification of various currently allowed deductions, and a deduction for REIT stockholders that are individuals, trusts and estates of up to 20% of ordinary REIT dividends. Many of the provisions of the 2017 Tax Legislation will require guidance through the issuance of Treasury regulations in order to assess their effect. There may be a substantial delay before such regulations are issued, increasing the uncertainty as to the ultimate effect of the statutory amendments on the Company. It is also likely that there will be technical corrections legislation proposed with respect to the 2017 Tax Legislation, the effect of which cannot be predicted and may be adverse to the Company or its stockholders.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the 2017 Tax Legislation. SAB 118 provides a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the 2017 Tax Legislation.

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of the 2017 Tax Legislation and refining calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The tax benefit recorded related to the remeasurement of the deferred tax balance and valuation allowance was $8,606, which is included as a component of income tax expense.

The impact of the 2017 Tax Legislation may differ from the Company’s estimates, possibly materially, due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the 2017 Tax Legislation. The Company will continue to make and refine calculations as additional analysis is completed. In addition, the estimates may also be affected as the Company gains a more thorough understanding of the tax law.