Note 13 Income Taxes

GMG, a wholly owned subsidiary of the Partnership, is a taxable entity for federal and state income tax purposes. Current and deferred income taxes are recognized on the separate earnings of GMG, and the after‑tax earnings of GMG are included in the consolidated earnings of the Partnership.

The following table presents a reconciliation of the difference between the statutory federal income tax rate and the effective income tax rate for the years ended December 31:


	2019		2018		2017
Federal statutory income tax rate	21.0	%	21.0	%	35.0	%
State income tax rate, net of federal tax benefit	2.9	%	2.8	%	1.2	%
Derecognition of goodwill	0.5	%	0.3	%	1.6	%
Federal deferred rate change	—	%	—	%	(65.5)	%
Partnership income not subject to tax	(21.4)	%	(18.9)	%	(42.5)	%
Effective income tax rate	3.0	%	5.2	%	(70.2)	%

The following table presents the components of the provision for income taxes for the years ended December 31 (in thousands):


	2019		2018		2017
Current:
Federal	$	35	$	162	$	1,371
State		1,036		2,706		1,011
Foreign		—		4		4
Total current		1,071		2,872		2,386
Deferred:
Federal		815		1,961		(25,217)
State		(792)		790		(732)
Total deferred		23		2,751		(25,949)
Total	$	1,094	$	5,623	$	(23,563)

Significant components of long‑term deferred taxes were as follows at December 31 (in thousands):


	2019		2018
Deferred Income Tax Assets
Accounts receivable allowances	$	751	$	760
Environmental liability		9,414		9,943
Asset retirement obligation		2,146		2,344
Deferred financing obligation		11,394		11,405
UNICAP		8		56
Lease liability		44,578		—
Other		1,471		1,384
Federal net operating loss carryforwards		18,505		14,811
State net operating loss carryforwards		1,134		1,087
Tax credit carryforward		691		284
Total deferred tax assets, gross		90,092		42,074
Valuation allowance		(3,299)		(3,138)
Total deferred tax assets, net	$	86,793	$	38,936
Deferred Income Tax Liabilities
Property and equipment	$	(74,031)	$	(69,356)
Land		(12,353)		(12,189)
Other deferred tax liabilities		(748)		—
Right of use assets		(42,536)		—
Intangible assets		(4)		(247)
Total deferred tax liabilities	$	(129,672)	$	(81,792)
Net deferred tax liabilities	$	(42,879)	$	(42,856)

The Partnership’s net deferred tax liabilities are primarily comprised of the differences in the historical tax basis and fair value book basis of property, equipment and land that were acquired in connection with the 2015 acquisition of Warren Equities, Inc. (“Warren”).

At December 31, 2019, GMG had federal and state net operating loss carryforwards of approximately $8.9 million and $18.9 million, respectively, which will begin to expire in 2034 and 2026, respectively. In addition, GMG had federal and state net operating loss carryforwards of approximately $66.8 and $0.2 million, respectively, which can be carried forward indefinitely. Utilization of the net operating loss carryforwards may be subject to annual limitations due to the ownership percentage change limitations provided by the Internal Revenue Code Section 382 and similar state provisions. In the event of a deemed change in control under Internal Revenue Code Section 382, an annual limitation imposed on the utilization of net operating losses may result in the expiration of all or a portion of the net operating loss carryforwards.

At December 31, 2019, the Partnership had $30.5 million of net deferred tax liabilities (consisting of the $42.9 million total net deferred tax liability less the $12.4 million deferred tax liability relating to land discussed below) relating to property and equipment, net operating loss carryforwards, tax credit carryforwards and other temporary differences, certain of which are available to reduce income taxes in future years. The Partnership recognizes deferred tax assets to the extent that the recoverability of these assets satisfies the “more likely than not” criteria in accordance with the FASB’s guidance regarding income taxes. A valuation allowance must be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates, length of carryback and carryforward periods and projections of future operating results. The Partnership concluded, based on an evaluation of future operating results and reversal of existing taxable temporary differences, that a portion of these assets will not be realized in a future period. The valuation allowance increased by approximately $0.2 million as of December 31, 2019.

At December 31, 2019, the Partnership also had a $12.4 million deferred tax liability relating to land. Land is an asset with an indefinite useful life and would not ordinarily serve as a source of income for the realization of deferred tax assets. This deferred tax liability will not reverse until some indefinite future period when the asset is either sold or written down due to impairment. Such taxable temporary differences generally cannot be used as a source of taxable income to support the realization of deferred tax assets relating to reversing deductible temporary differences, including loss carryforwards with expiration periods. It can be used as a source of income to benefit other indefinite lived assets.

The following presents a reconciliation of the differences between income before income tax (expense) benefit and (loss) income subject to income tax expense for the years ended December 31 (in thousands):


	2019		2018		2017
Income before income tax (expense) benefit	$	36,272	$	108,026	$	33,554
Less non—taxable income		37,001		97,561		40,904
(Loss) income subject to income tax expense	$	(729)	$	10,465	$	(7,350)

The Partnership made approximately ($5.2 million), $0.7 million and $7.4 million in income tax payments, net of refunds received, during 2019, 2018 and 2017, respectively. The ($5.2 million) in 2019 consists of tax refunds of ($7.6 million) received associated with the Warren amended returns for periods prior to the acquisition of Warren on January 27, 2015 and ($0.2 million) of other tax refunds, offset by $2.6 million in income tax payments. In accordance with the stock purchase agreement between the Partnership and Warren, the Partnership is ultimately not responsible for federal income tax obligations for tax periods prior to and through January 6, 2015. Any tax obligations will be funded by the selling shareholders, and any tax refunds will be remitted to the selling shareholders.

GMG files income tax returns in the United States and various state jurisdictions. With few exceptions, the Partnership is subject to income tax examinations by tax authorities for all years dated back to 2016.

The following presents the changes in gross unrealized tax benefits for the years ended December 31 (in thousands):


	2019		2018		2017
Balance at beginning of year	$	994	$	994	$	1,433
Increases for tax positions taken in prior years		—		—		28
Settlements of tax positions taken in prior years		—		—		(467)
Income subject to income tax expense	$	994	$	994	$	994

Unrecognized tax benefits represent uncertain tax positions for which reserves have been established. The Partnership had gross-tax effected unrecognized tax benefits of $1.0 million for each of the years ended December 31, 2019, 2018 and 2017, all of which would favorably impact the effective tax rate if recognized.

The FASB’s accounting guidance for income taxes clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. The Partnership performed an evaluation of all material tax positions for the tax years that remain subject to examination by major tax jurisdictions as of December 31, 2019 (tax years ended December 31, 2019, 2018 and 2017). Tax positions that do not meet the more-likely-than-not recognition threshold at the financial statement date may not be recognized or continue to be recognized under the accounting guidance for income taxes. The Partnership classifies interest and penalties related to income taxes as components of its provision for income taxes. The amount of interest and penalties recorded in the accompanying statements of operations was $0.1 million, $0.1 million and $0 for the years ended December 31, 2019, 2018 and 2017, respectively. The amount of interest and penalties recorded in the accompanying consolidated balance sheets was $0.2 million as of both December 31, 2019 and 2018. The Partnership anticipates that the liability for unrecognized tax benefits for uncertain tax positions could change by up to $1.0 million in the next twelve months as a result of closure of various statutes of limitations.