13.INCOME TAXES

The Company’s operations are conducted through its various subsidiaries in countries throughout the world. The Company has provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned. For the year ended December 31, 2016, Waste Connections, Inc. is the public parent corporation organized under the laws of Ontario, Canada. For the years ended December 31, 2015 and December 31, 2014, Waste Connections US, Inc. (f/k/a Waste Connections, Inc.), a Delaware corporation, was the public parent corporation.

Income (loss) before provision (benefit) for income taxes consists of the following:


	Years Ended December 31,
	2016		2015		2014
U.S.	$	243,955	$	(126,286)	$	385,662
Non – U.S.		117,410		-		-
Income (loss) before income taxes	$	361,365	$	(126,286)	$	385,662

The provision (benefit) for income taxes for the years ended December 31, 2016, 2015 and 2014, consists of the following:


	Years Ended December 31,
	2016		2015		2014
Current:
U.S. Federal	$	46,735	$	86,053	$	103,332
State		14,692		14,809		17,972
Non – U.S.		10,307		-		-
		71,734		100,862		121,304
Deferred:
U.S. Federal		47,403		(117,549)		27,646
State		3,536		(14,905)		3,385
Non – U.S.		(8,629)		-		-
		42,310		(132,454)		31,031
Provision (benefit) for income taxes	$	114,044	$	(31,592)	$	152,335

We are organized under the laws of Ontario, Canada; however, since the proportion of U.S. revenues, assets, operating income and associated tax provisions is significantly greater than any other single taxing jurisdiction within the worldwide group, the reconciliation of the differences between the Company’s income tax provision (benefit) as presented in the accompanying Consolidated Statements of Net Income (Loss) and income tax provision (benefit) computed at the federal statutory rate is presented on the basis of the U.S. federal statutory income tax rate of 35% as opposed to the Canadian statutory rate of approximately 27% to provide a more meaningful insight into those differences and provide greater comparability to prior years. The items shown in the following table are a percentage of pre-tax income (loss):


	Years Ended December 31,
	2016		2015		2014
U.S. federal statutory rate		35.0%		(35.0%)		35.0%
State taxes, net of federal benefit		3.9		(0.3)		3.8
Deferred income tax liability adjustments		0.6		(3.1)		0.3
Effect of international operations		(10.9)		-		-
Progressive Waste acquisition		2.3		-		-
Goodwill impairment		-		12.3		-
Other		0.7		1.1		0.4
		31.6%		(25.0%)		39.5%

The comparability of the Company’s income tax provision (benefit) for the reported periods has been affected by variations in its income (loss) before income taxes.

During the year ended December 31, 2016, the effects of international operations are primarily due to the Company’s non-U.S. income being taxed at rates substantially lower than the U.S. federal statutory rate, as well as a portion of the Company’s income from internal financing that is either untaxed or taxed at rates substantially lower than the U.S. federal statutory rate. Additionally, non-deductible expenses incurred in connection with the Progressive Waste acquisition resulted in an increase to tax expense of $9,048. During the year ended December 31, 2015, the Deferred income tax liability adjustments, due primarily to changes in the geographical apportionment of the Company’s state income taxes associated with the impairment of a portion of the goodwill, indefinite-lived intangible assets and property and equipment within its E&P segment, resulted in an increase to tax benefit of $3,869. Additionally, a portion of the aforementioned goodwill impairment within the Company’s E&P segment that was not deductible for tax purposes resulted in a decrease to federal tax benefit of $15,546. During the year ended December 31, 2014, the Deferred income tax liability adjustments, due primarily to the enactment of New York State’s 2014-2015 Budget Act, resulted in an increase to tax expense of $1,220.

The significant components of deferred income tax assets and liabilities, reduced by valuation allowances as applicable, as of December 31, 2016 and 2015 are presented below. The increases in 2016 are primarily due to the Progressive Waste acquisition.


	2016		2015
Deferred income tax assets:
Accrued expenses	$	68,706	$	37,465
Compensation		28,994		16,924
Interest rate and fuel hedges		-		7,475
Contingent liabilities		20,653		17,636
Finance costs		10,374		-
Tax credits and loss carryforwards		43,596		-
Other		10,022		9,648
Gross deferred income tax assets		182,345		89,148
Less: Valuation allowance		(14,567)		-
Net deferred income tax assets		167,778		89,148

Deferred income tax liabilities:
Goodwill and other intangibles		(383,205)		(158,093)
Property and equipment		(460,878)		(288,953)
Landfill closure/post-closure		(87,006)		(37,185)
Prepaid expenses		(13,244)		(7,683)
Interest rate and fuel hedges		(2,109)		-
Total deferred income tax liabilities		(946,442)		(491,914)
Net deferred income tax liability	$	(778,664)	$	(402,766)

We have $32,157 of U.S. federal tax loss carryforwards as of December 31, 2016. The utilization of these carryforwards as an available offset to future taxable income is subject to limitations under U.S. federal income tax laws. These carryforwards begin to expire in 2028. In addition, we have $14,269 of Canadian tax loss carryforwards with a 20-year carryforward period as well as various state tax losses with carryforward periods up to 20 years. We have $14,567 of foreign tax credits in the U.S. which have a full valuation allowance, as sufficient uncertainty exists regarding the future realization of these credits.

The excess tax benefit associated with equity-based compensation of $5,196, $2,069 and $7,518 for the years ended December 31, 2016, 2015 and 2014, respectively, was recorded in additional paid-in capital.

The Company and its subsidiaries are subject to U.S. federal and Canadian income tax, which are our principle operating jurisdictions. The Company has concluded all U.S. federal income tax matters for years through 2012, except for the Progressive Waste U.S. federal income tax jurisdiction, which remains open for years subsequent to 2007. Additionally, the Company has concluded all Canadian income tax matters for years through 2009.

The Company did not have any unrecognized tax benefits recorded at December 31, 2016, 2015 or 2014. The Company does not anticipate the total amount of unrecognized tax benefits will significantly change by December 31, 2017. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

As of December 31, 2016, the Company had undistributed earnings of approximately $1,600,000 for which income taxes have not been provided for. The Company intends to continue to reinvest these earnings for the foreseeable future. It is not practical to estimate the additional tax that may become payable upon the eventual repatriation of these earnings to Canada; however, repatriation of these earnings could result in a material increase to the Company’s effective tax rate. As a result of the Progressive Waste acquisition, the Company continues to actively analyze cumulative earnings and profits in all jurisdictions.