INCOME TAXES

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made major changes to the Internal Revenue Code. The Company recognized the income tax effects of the Tax Act in its financial statements in accordance with Staff Accounting Bulletin 118 which provides SEC staff guidance for the application of ASC 740, Income Taxes. The Company finalized its accounting for the income tax effects of the Tax Act in the fourth quarter of 2018 with no adjustments recorded during the measurement period.

Income Tax Expense

The components of current and deferred income tax expense are as follows (in thousands):



	Years Ended December 31,
	2018			2017			2016
Current expense (benefit):
Federal	$	(569	)	$	999		$	158
State	2,993			1,733			2,076
Total current expense	2,424			2,732			2,234
Deferred expense (benefit):
Federal	15,023			36,569			13,146
State	(311		)	(270		)	1
Total deferred expense	14,712			36,299			13,147
Total income tax expense	$	17,136		$	39,031		$	15,381

Effective Tax Rate Reconciliation

The tax expense differs from the amount that would be computed by applying the statutory federal income tax rates of 21%, 35% and 35% for the years ended December 31, 2018, 2017 and 2016, respectively, to income before income taxes as a result of the following (amounts in thousands):



	Years Ended December 31,
	2018			2017			2016
Tax on pre-tax book income (before reduction of noncontrolling interests)	$	17,151		$	22,483		$	17,693
Tax effect of non-controlled earnings	(2,743		)	(3,630		)	(3,996		)
State tax expense, net	2,258			1,213			1,153
Change in federal statutory tax rate	—			19,017			—
Other	470			(52		)	531
Total tax expense	$	17,136		$	39,031		$	15,381
Effective tax rate	21.0		%	60.8		%	30.4		%

The effective income tax rate for 2017 reflects the impact of compliance with the Tax Act, signed into law on December 22, 2017. The Company remeasured its deferred tax assets due to the change in federal statutory tax rate which resulted in additional tax expense of $19.0 million.

Deferred Income Taxes

The primary differences between the financial statement and tax bases of assets and liabilities are as follows (in thousands):



	December 31, 2018			December 31, 2017
Deferred tax assets:
Basis in partnerships	10,947			13,377
Accrued expenses	2,182			1,418
Inventory	1,521			944
State net operating loss carryover	1,063			1,353
Federal net operating loss carryover	432			14,078
Alternative minimum tax credit carryover	576			1,145
Change in fair value of contingent consideration	385			—
Stock-based compensation	347			268
Other	175			28
Deferred tax assets, gross	17,628			32,611
Valuation allowance	(1,063		)	(1,346		)
Deferred tax assets, net	$	16,565		$	31,265

Deferred tax liabilities:
Prepaid insurance	$	(66	)	$	(17	)
Other	—			(37		)
Deferred tax liabilities	$	(66	)	$	(54	)
Total deferred income tax assets, net	$	16,499		$	31,211

Net Operating Losses and Valuation Allowances

As of December 31, 2018, the Company had federal net operating loss carryforwards of $2.0 million that will expire beginning with the year ending December 31, 2029. Our ability to utilize our net operating loss carryforwards depends on the amount of taxable income we generate in future periods. Based on our historical taxable income results through December 31, 2018, as well as forecasted income, management expects that the Company will generate sufficient taxable income to utilize all of the federal net operating loss carryforwards before they expire.

As of December 31, 2018, the Company had gross state net operating loss carryforwards in Minnesota of $13.7 million which will begin to expire beginning with the year ending December 31, 2023. Management believes on a more-likely-than-not basis that the Minnesota net operating loss carryforwards will not be utilized. The Company maintains a gross deferred income tax asset in the amount of $1.1 million for the Minnesota state net operating loss carryforwards and a related valuation allowance in the amount of $1.1 million.

As of December 31, 2018, all Colorado state net operating loss carryforwards were fully utilized and all Nebraska state net operating loss carryforwards expired.

The rollforward of valuation allowance is as follows (amounts in thousands):



	Years Ended December 31,
	2018			2017
Valuation allowance at beginning of the year	$	1,346		$	1,147
Release of Colorado net operating loss valuation allowance	—			(8		)
Change in federal benefit tax rate - deferred	—			240
Expiration of state net operating losses	(283		)	(33		)
Valuation allowance at end of the year	$	1,063		$	1,346

Uncertain Tax Positions

The Company establishes reserves for uncertain tax positions that reflect management’s best estimate of deductions and credits that may not be sustained on a more-likely-than-not basis. In accordance with ASC 740, Income Taxes, the Company recognizes the effect of income tax positions only if those positions have a more-likely-than-not chance of being sustained by the Company. Recognized income tax positions are measured at the largest amount that is considered greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. There were no uncertain tax positions as of December 31, 2018.

A reconciliation of the beginning and ending amount of uncertain tax positions for the year ended December 31, 2017 is as follows (in thousands):



	Year Ended December 31, 2017
Uncertain tax positions at beginning of year	$	249
Change related to Georgia state income taxes	(249		)
Uncertain tax positions at end of year	$	—

There were no expenses for interest and penalties related to uncertain tax positions for the years ended December 31, 2018 and 2017. Expenses related to such interest and penalties were nil for the year ended December 31, 2016. There were no accrued liabilities related to uncertain tax positions as of December 31, 2018 and 2017, respectively.

Statutes of Limitations

The U.S. federal statute of limitations remains open for our 2015 and subsequent tax years. Due to the carryover of the federal net operating losses for years 2009 and forward, income tax returns going back to the 2009 tax year are subject to adjustment.

The Colorado and Minnesota statutes of limitations remain open for our 2014 and subsequent tax years. The Nebraska statute of limitations remains open for our 2015 and subsequent tax years.

Additionally, the Company’s subsidiaries file returns in Texas, Georgia and Florida. The Texas statute of limitations remains open for the 2014 and subsequent tax years. Any Texas adjustments relating to returns filed by the subsidiary partnerships would be borne by the subsidiary partnership entities. The Georgia statute of limitations remains open for the 2015 and subsequent tax years. Any Georgia adjustments relating to returns filed by the subsidiary partnerships would be borne by the partner. A Florida corporate tax return will be required starting for the 2018 tax year. The Florida statute of limitations will remain open for three years from the earlier of the date the return is filed or the extended due date of the return. Any Florida adjustments relating to returns filed by the subsidiary partnerships would be borne by the partner.

The Company is not presently under examination by the Internal Revenue Service or state tax authority.