Income Taxes

12 Months Ended

Dec. 31, 2018

On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. The Tax Cuts and Jobs Act changed several aspects of US federal tax law including: reducing the US corporate income tax rate from 35.0% to 21.0% beginning on January 1, 2018; applying a one-time tax on the deemed mandatory repatriation of the Company's unremitted foreign earnings which have not been subject to US tax; imposing a minimum US tax on foreign earnings; providing for the immediate expensing of certain qualified property; and changing the tax treatment of performance-based executive compensation and certain employee fringe benefits.

The SEC issued Staff Accounting Bulletin 118 allowing for provisional amounts to be recorded during a measurement period not to exceed one year. During the year ended December 31, 2017, the Company recorded provisional amounts for the impact of revaluing deferred tax assets and liabilities, the deemed mandatory repatriation tax on the Company's unremitted foreign earnings and the state income tax effects from the changes in federal tax law during the year. The Company adjusted the US federal and state provisional amounts during 2018, recording a net tax benefit of $2 million. The adjustment was primarily driven by the rate differential on adjustments to temporary book-tax differences made in finalizing the 2017 federal income tax return and finalizing the deemed mandatory repatriation tax on the Company's unremitted foreign earnings.

Income before income taxes was taxed under the following jurisdictions:



	Year Ended December 31,
(in millions)	2018		2017		2016
			(as adjusted)		(as adjusted)
Domestic	$	762.3	$	608.3	$	635.5
Foreign	78.2		52.4		37.7
Total	$	840.5	$	660.7	$	673.2

Components of Income tax expense (benefit) consist of the following:



	Year Ended December 31,
(in millions)	2018			2017			2016
				(as adjusted)			(as adjusted)
Current:
Federal	$	192.6		$	258.9		$	295.6
State	43.3			29.8			34.9
Foreign	17.7			21.3			16.8
Total current	253.6			310.0			347.3
Deferred:
Domestic	(52.7		)	(167.6		)	(90.5		)
Foreign	(3.4		)	(4.8		)	(8.7		)
Total deferred	(56.1		)	(172.4		)	(99.2		)
Income tax expense	$	197.5		$	137.6		$	248.1

The reconciliation between the statutory tax rate expressed as a percentage of income before income taxes and the effective tax rate is as follows:



	Year Ended December 31,
(dollars in millions)	2018					2017					2016
						(as adjusted)					(as adjusted)
Statutory federal income tax rate	$	176.5		21.0	%	$	231.1		35.0	%	$	235.5		35.0	%
State taxes, net of federal effect	31.1			3.7		18.3			2.8		17.7			2.6
Excess tax benefit of equity awards	(19.7		)	(2.3	)	(36.2		)	(5.5	)	(1.6		)	(0.2	)
Effect of rates different than statutory	0.6			0.1		(6.3		)	(1.0	)	(4.6		)	(0.7	)
Tax on foreign earnings	2.8			0.3		1.0			0.1		0.8			0.1
Effect of UK tax rate change on deferred taxes	—			—		—			—		(1.5		)	(0.2	)
Effect of US Tax Cuts and Jobs Act on deferred taxes and repatriation tax	(1.9		)	(0.2	)	(75.5		)	(11.4	)	—			—
Other	8.1			0.9		5.2			0.8		1.8			0.3
Effective tax rate	$	197.5		23.5	%	$	137.6		20.8	%	$	248.1		36.9	%

The tax effect of temporary differences that give rise to net deferred income tax liabilities is presented below:



	December 31,
(in millions)	2018		2017
Deferred tax assets:
Equity compensation plans	$	17.7	$	18.7
Payroll and benefits	9.3		8.0
Deferred interest	—		6.8
Net operating loss and credit carryforwards, net	23.8		28.1
Rent	7.5		7.4
Accounts receivable	6.5		5.4
Other	10.0		9.5
Total deferred tax assets	74.8		83.9

Deferred tax liabilities:
Software and intangibles	148.6		194.5
Deferred income	—		18.6
International investments	19.2		19.2
Property and equipment	20.0		20.4
Other	11.7		12.0
Total deferred tax liabilities	199.5		264.7
Deferred tax asset valuation allowance	17.2		15.5
Net deferred tax liabilities	$	141.9	$	196.3

The Company has state and international income tax net operating losses of $11 million, which will expire at various dates from 2026 through 2032 and state and international tax credit carryforwards of $25 million, which expire at various dates from 2021 through 2027.

Due to the nature of the CDW UK acquisition, the Company has provided US income taxes of $19 million on the excess of the financial reporting value of the investment over the corresponding tax basis. The Company is indefinitely reinvested in its UK business, and therefore will not provide for any US deferred taxes on the earnings of the UK business. The Company is not permanently reinvested in its Canadian business and therefore has recognized deferred tax liabilities of $3 million as of December 31, 2018 related to withholding taxes on earnings of its Canadian business.

In the ordinary course of business, the Company is subject to review by domestic and foreign taxing authorities, including the Internal Revenue Service ("IRS"). In general, the Company is no longer subject to audit by the IRS for tax years through 2014 and state, local or foreign taxing authorities for tax years through 2013. Various taxing authorities are in

the process of auditing income tax returns of the Company and its subsidiaries. The Company does not anticipate that any adjustments from the audits would have a material impact on its consolidated financial position, results of operations or cash flows.

Changes in the Company's unrecognized tax benefits at December 31, 2018, 2017 and 2016 were as follows:



	Year Ended December 31,
(in millions)	2018		2017		2016
Balance as of January 1, 2018	$	—	$	—	$	—
Additions for tax positions related to current year	15.1		—		—
Balance as of December 31, 2018	$	15.1	$	—	$	—

As of December 31, 2018, the Company had $15 million of unrecognized tax benefits that, if recognized, would have decreased income taxes and the corresponding effective income tax rate and increased net earnings. The impact of recognizing these tax benefits, net of the federal income tax benefit related to unrecognized state income tax benefits, would be approximately $12 million.