Income Taxes

12 Months Ended

Dec. 31, 2019

We have elected to be treated as a REIT under the provisions of the Internal Revenue Code, which requires that we distribute at least 90% of our taxable income annually to our stockholders and comply with certain other requirements. In addition to paying federal and state taxes on any retained income, we may be subject to taxes on “built in gains” on sales of certain assets. Our taxable REIT subsidiaries are subject to federal, state, local and/or foreign income taxes.

Our provision for income taxes consists of the following (in thousands):



	Year Ended December 31,
	2019		2018			2017
Current - Federal	$	420	$	66		$	622
State	541		984			1,221
Foreign	49		460			662
	1,010		1,510			2,505
Deferred - Federal	80		1,857			6,432
State	132		178			425
Foreign	20,806		(444		)	845
	21,018		1,591			7,702
Income tax provision	$	22,028	$	3,101		$	10,207

A reconciliation of the statutory federal tax provision to our income tax provision is as follows (in thousands):



	Year Ended December 31,
	2019			2018			2017
Statutory federal tax provision (1)	$	43,313		$	19,089		$	35,729
Tax impact of REIT election	(14,125		)	(14,439		)	(22,277		)
State income tax provision, net of federal tax benefit	532			705			1,652
Foreign income tax benefit	(6,998		)	(2,927		)	(430		)
Tax reform impact on U.S. taxes	—			—			(2,143		)
Tax reform impact on foreign taxes	—			—			(2,076		)
Other	(694		)	673			(248		)
Income tax provision	$	22,028		$	3,101		$	10,207

_____________________________


(1)	Beginning January 1, 2018, the U.S. federal income tax rate decreased from 35% to 21%.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation, H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Tax Act”). Among other changes to the U.S. tax code, the Tax Act reduced the U.S. federal corporate income tax rate to 21%, and required companies to pay a one-time transition tax on certain unrepatriated earnings (where applicable) of foreign subsidiaries with an election option to defer the transition tax over eight years. Accordingly, our federal net deferred tax liabilities as of December 31, 2017 have been remeasured using a U.S. federal income tax rate of 21% that is effective beginning on January 1, 2018, to reflect the effects of the enacted changes in tax rates at the date of enactment based on the applicable enacted tax rate when the temporary differences and carryforwards are expected to reverse. The impact of this remeasurement is a decrease to net deferred tax liabilities and a decrease to the deferred income tax provision in 2017 of approximately $4.2 million. Additionally, we elected to defer the transition tax inclusion of approximately $17.8 million into REIT taxable income related to the deemed mandatory repatriation of foreign earnings and profits of the Frenchman's Reef & Morning Star Beach Resort (located in the U.S. Virgin Islands) over the eight-year period allowed under the Tax Act. The transition tax increased our 2017 REIT taxable income in 2017 by approximately $1.5 million. The remaining deferred transition tax inclusion was included in our 2018 REIT taxable income.

We are required to pay franchise taxes in certain jurisdictions. We recorded approximately $0.3 million of franchise taxes during the years ended December 31, 2019 and 2018 and $0.2 million of franchise taxes during the year ended December 31, 2017. These franchise taxes are classified as corporate expenses in the accompanying consolidated statements of operations.

Deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are paid. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realizable based on consideration of available evidence, including future reversals of existing taxable temporary differences, projected future taxable income and tax planning strategies. Deferred tax assets are included in prepaid and other assets and deferred tax liabilities are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. The total deferred tax assets and liabilities are as follows (in thousands):



	2019			2018
Federal
Net operating loss carryforwards	$	—		$	1,983
Deferred income related to key money	2,382			2,465
Alternative minimum tax credit carryforwards	—			103
Other	529			326
Depreciation and amortization	(7,928		)	(9,188		)
Federal - Deferred tax (liabilities) assets, net	$	(5,017	)	$	(4,311	)

State
Net operating loss carryforwards	$	2,572		$	2,975
Deferred income related to key money	735			780
Alternative minimum tax credit carryforwards	80			80
Other	167			103
Depreciation and amortization	(2,446		)	(2,906		)
Less: Valuation allowance	(700		)	(700		)
State - Deferred tax assets, net	$	408		$	332

Foreign (USVI)
Deferred income related to key money	$	—		$	—
Depreciation and amortization	(21,060		)	(255		)
Other	—			—
Land basis recorded in purchase accounting	(2,617		)	(2,617		)
Foreign - Deferred tax liabilities, net	$	(23,677	)	$	(2,872	)

As of December 31, 2019, we had deferred tax assets of $2.6 million consisting of state net operating loss carryforwards. The state loss carryforwards generally expire in 2022 through 2034 if not utilized by then. The Company analyzes state loss carryforwards on a state by state basis and records a valuation allowance when we deem it more likely than not that future results will not generate sufficient taxable income in the respective state to realize the deferred tax asset prior to the expiration of the loss carryforwards. As of December 31, 2019, we have a $0.7 million valuation allowance on the deferred tax asset related to the Illinois and Georgia state loss carryforwards.

The Frenchman's Reef & Morning Star Beach Resort is owned by a subsidiary that has elected to be treated as a TRS, and is subject to U.S. Virgin Islands (“USVI”) income taxes. We are party to a tax agreement with the USVI that reduces the income tax rate to approximately 4.4%. In December 2019, we were granted a modification to the tax agreement that reduces the income tax rate to approximately 2.3% beginning January 1, 2020. This agreement expires in February 2030.