Income Taxes

12 Months Ended

Dec. 31, 2019

The Company and its subsidiaries are subject to income taxes. The Company files a consolidated U.S. income tax return with its wholly owned domestic subsidiaries, including its allocated share of the taxable income from the solar and wind facilities through the date of sale. The Company and its subsidiaries file separate and combined state income tax returns.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law and included provisions that have an impact on the Company’s federal taxable income. The most significant of these are 100% bonus depreciation on qualifying assets (which is scheduled to phase down ratably to 0% between 2023 and 2027) and a reduction in the federal corporate tax rate from 35% to 21%.

The Tax Cuts and Jobs Act also includes a new limitation on the deductibility of net interest expense that generally limits the deduction to 30% of “adjusted taxable income”. For years before 2022, adjusted taxable income is defined as taxable income computed without regard to certain items, including net business interest expense, the amount of any NOL deduction, tax depreciation and tax amortization. The Company does not expect to incur net interest expense that is greater than 30% of adjusted taxable income prior to 2022.

Components of the Company’s income tax provision (benefit) related to the income from continuing operations in 2019, 2018 and 2017 were ($ in millions):



	Year Ended December 31,
	2019			2018			2017
Current taxes:
State	$	12		$	14		$	10
Total current tax provision	12			14			10
Deferred taxes:
Federal	28			31			(247		)
State	(1		)	9			6
Total deferred tax provision (benefit)	27			40			(241		)
Change in valuation allowance	—			(4		)	1
Total tax provision (benefit)	$	39		$	50		$	(230	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities from continuing operations at December 31, 2019 and 2018 were ($ in millions):



	At December 31,
	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	30		$	26
Operating lease liabilities	91			—
Deferred revenue	9			7
Accrued expenses	34			28
Investment and foreign tax credits	1			4
Total gross deferred tax assets	165			65
Less: valuation allowance	—			(1		)
Net deferred tax assets	165			64
Deferred tax liabilities:
Intangible assets	(99		)	(93		)
Investment basis difference	(19		)	(19		)
Operating lease assets, net	(90		)	—
Property and equipment	(633		)	(624		)
Unrealized loss (gains) on derivative instruments, net	4			(2		)
Equity component of convertible senior notes	(5		)	(6		)
Prepaid expenses	(2		)	(1		)
Total deferred tax liabilities	(844		)	(745		)
Net deferred tax liabilities	$	(679	)	$	(681	)

At December 31, 2018, the Company had $152 million in federal income tax net operating loss (NOL) carryforwards. During 2019, the Company fully utilized all of its NOL carryforwards to offset income generated from continuing operations and a portion of the taxable gain from the sale of the solar and wind facilities. In addition, the Company and its subsidiaries have state NOL carryforwards. State NOL carryforwards are specific to the state in which the NOL was generated and various states impose limitations on the utilization of NOL carryforwards.

In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In 2019, there were no significant change in the valuation allowance.

At December 31, 2019, the Company had $679 million in noncurrent deferred tax liabilities from continuing operations. A significant portion of the Company’s deferred tax liabilities relates to tax basis temporary differences of both property and equipment and intangible assets. The Company records the acquisitions of consolidated businesses under the purchase method of accounting and accordingly recognizes a significant increase to the value of the property and equipment and to intangible assets. For tax purposes, the Company may assume the existing tax basis of the acquired businesses, in which case the Company records a deferred tax liability to reflect the increase in the purchase accounting basis of the assets acquired over the carryover income tax basis. This liability will reduce in future periods as these temporary differences reverse.

In 2019, 2018 and 2017, the Company recorded an income tax expense of $39 million, $50 million and an income tax benefit of $230 million, respectively, from continuing operations. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a $316 million tax benefit from continuing operations in the Company’s consolidated statement of income for the year ended December 31, 2017. These amounts are different from the amounts computed by applying the U.S. federal income tax rate for the period to pretax income as a result of the following ($ in millions):



	Year Ended December 31,
	2019		2018			2017
Tax provision at U.S. statutory rate	$	29	$	24		$	71
Permanent differences and other	1		4			10
State income taxes, net of federal benefit	9		19			11
Income attributable to noncontrolling interest	—		1			1
Change in investment and foreign tax credits	—		6			(8		)
Change in U.S. tax law	—		—			(316		)
Change in valuation allowance	—		(4		)	1
Total tax provision (benefit)	$	39	$	50		$	(230	)

Uncertain Tax Positions

The amount of unrecognized tax benefits at December 31, 2019 and 2018 are not significant. The Company does not expect that the amount of unrecognized tax benefits will change in the next 12 months. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in the statements of operations, which is consistent with the recognition of these items in prior reporting periods.

The federal statute of limitations on the assessment of additional income tax liabilities has lapsed for all returns filed on or before December 31, 2016. The various state statutes of limitations on the assessment of additional income taxes have lapsed on all returns filed on or before December 31, 2015.