Income Taxes

On December 22, 2017, the Act was enacted and signed into law. The Act makes broad and complex changes to the U.S. tax code that significantly affected the Company's income tax rate in 2017. The Act, among other things, reduces the U.S. federal corporate income tax rate from 35% to 21%; limits the use of foreign tax credits to reduce U.S. income tax liability; eliminates the corporate AMT and changes how existing AMT credits can be realized; allows immediate expensing for qualified assets; creates a new limitation on deductible interest expense; repeals the domestic production activities deduction; and limits the deductibility of certain executive compensation and other deductions.

ASC 740 requires a company to record the effects of a tax law change in the period of enactment. SAB 118 has provided guidance for companies that have not completed their accounting for the income tax effect of the Act in the period of enactment, allowing for a measurement period of up to one year after the enactment date in order to finalize the recording of the related tax impacts. As of December 31, 2017, the Company has made a reasonable estimate of the impact of the Act and recorded a net tax benefit of $5.9 million, or $0.21 per share, as part of its income tax benefit for the year. Although the $5.9 million represents a reasonable estimate of the impact of the Act, it should be considered provisional. The impact of the Act may differ from this estimate due to additional guidance that may be issued, changes in assumptions made and the finalization of U.S. income tax positions with the filing of the Company's 2017 U.S. income tax return which will allow for the ability to conclude whether any further adjustments are necessary to its deferred tax assets and liabilities. Any adjustments to these provisional amounts will be reported as a component of income tax (benefit) expense in the reporting period in which any such adjustments are identified and no later than the fourth quarter of 2018. The Company will continue to analyze the Act in order to finalize any related impacts within the measurement period.

The following table presents the components of our consolidated income tax (benefit) expense for the years ended December 31, 2017, 2016 and 2015:



	Current			Deferred			Total
Year ended December 31, 2017
U.S. Federal ^(a)	$	(780	)	$	(3,986	)	$	(4,766	)
State and local	550			$	(180	)	$	370
Foreign	(145		)	—			(145		)
	$	(375	)	$	(4,166	)	$	(4,541	)
Year ended December 31, 2016
U.S. Federal	$	35		$	(1,093	)	$	(1,058	)
State and local	511			1,519			2,030
Foreign	284			325			609
	$	830		$	751		$	1,581
Year ended December 31, 2015
U.S. Federal	$	3		$	(3,768	)	$	(3,765	)
State and local	(60		)	883			823
Foreign	423			—			423
	$	366		$	(2,885	)	$	(2,519	)

(a) Includes a $5.9 million net benefit recorded in the fourth quarter of 2017 resulting from the enactment of the Act on December 22, 2017.

The Company’s income tax provision reconciles to the provision at the statutory U.S. federal income tax rate for each year ended December 31, as follows:



	2017			2016			2015
Statutory amount (computed at 35%)	$	(1,449	)	$	(714	)	$	(3,703	)
Re-measurement of deferred tax assets ^(a)	(7,451		)	—			—
Valuation allowance on foreign tax credits ^(a)	1,514			—			—
State income tax, net of federal benefit	168			94			(709		)
Permanent differences, other	505			99			43
Permanent differences, incentive stock options	447			224			298
Valuation allowance, other	(77		)	1,769			1,552
Uncertain tax provision	1,614			—			—
Other	188			109			—
Consolidated income tax provision	$	(4,541	)	$	1,581		$	(2,519	)
Consolidated effective tax rate	109.7		%	(77.5		)%	23.8		%

(a) Represents estimated impact recorded in the fourth quarter of 2017 resulting from the enactment of the Act on December 22, 2017.

In the current year, the Company's effective tax rate differed from the statutory rate of 35% primarily due to the impact of the Act enacted on December 22, 2017. We recorded a net tax benefit of $5.9 million, or $0.21 per share, resulting from the re-measurement of the Company’s net deferred tax liabilities to reflect the new, lower U.S. corporate income tax rate of 21%, partially offset by the addition of a partial valuation allowance recorded against existing foreign tax credit carryforwards not expected to be utilized in future tax years. This net tax benefit was partially offset by the addition of an uncertain tax position reserve as well as tax expense for permanent differences associated with incentive stock options and meals and entertainment.

Deferred Taxes

The Company’s deferred tax assets and liabilities are as follows:



	December 31, 2017					December 31, 2016
	Current		Long- term ^(a)			Current			Long-term
Assets related to:
Accrued liabilities	$	—	$	1,226		$	2,322		$	—
Intangible assets	—		3,010			—			4,517
Net operating loss carryforward	—		6,912			—			7,455
Valuation allowance	—		(3,942		)	—			(3,321		)
Non-qualified stock options	—		762			112			1,367
Foreign tax credits	—		1,751			—			2,035
Valuation allowance on foreign tax credits	—		(1,514		)	—			—
AMT credits	—		—			—			780
Other	—		215			45			16
Total assets	—		8,420			2,479			12,849
Liabilities related to:
Depreciation and amortization	—		(15,788		)	—			(25,326		)
Goodwill	—		(5,178		)	—			(6,502		)
Deferred revenue on maintenance contracts	—		(597		)	(429		)	—
Other	—		(100		)	(37		)	(21		)
Total liabilities	—		(21,663		)	(466		)	(31,849		)
Net deferred (liabilities) assets	$	—	$	(13,243	)	$	2,013		$	(19,000	)

(a) Components of our deferred tax assets and liabilities at December 31, 2017 after taking into account the estimated impact of the Act and related items.

As reported in the Consolidated Balance Sheets:



	December 31, 2017			December 31, 2016
Net current deferred tax assets	—			2,013
Net non-current deferred tax liabilities	(13,243		)	(19,000		)
Total net deferred tax liabilities:	$	(13,243	)	$	(16,987	)

In the quarter ended March 31, 2017, the Company adopted ASU 2015-17, Balance Sheet Classification of Deferred Taxes. Previously, U.S. GAAP required an entity to separate deferred income tax liabilities and assets into current and non-current amounts in a classified statement of financial position. The amendments in this update require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The Company elected to adopt this guidance prospectively and as such $2.0 million of deferred tax assets as of December 31, 2016 appears on the balance sheet as current.

Additionally, in the quarter ended March 31, 2017, the Company adopted ASU 2016-09, Improvements to Employee-Based Payment Accounting. As part of this adoption, certain federal net operating losses ("NOLs") that were previously classified as off-balance sheet are now being recognized as deferred tax assets through an adjustment to opening retained earnings. The Company chose to prospectively adopt this guidance during the first quarter of 2017 and as such the balance sheet includes an adjustment of approximately $0.7 million as an addition to "Retained earnings" and a reduction to the "Deferred income taxes" line items on the Consolidated Balance Sheet in order to true-up the tax effected portion of the NOLs mentioned above. Due to the prospective adoption, no prior year adjustments were made.

The Company assessed the realizability of its deferred tax assets at December 31, 2017 and 2016, and considered whether it was more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets depends upon the generation of future taxable income, which includes the reversal of deferred tax liabilities related to depreciation, during the periods in which these temporary differences become deductible.

The Company has a tax effected NOLs as of December 31, 2017 of $5.7 million for state income tax reporting purposes due to the cumulative losses sustained in various states. The Company believes it will be able to partially utilize these NOLs against future income primarily with reversing of temporary differences attributable to depreciation, due to expiration dates well into the future. However, the Company has determined that a portion of the NOLs related to certain jurisdictions will more likely than not be able to be fully utilized. Therefore, a valuation allowance of $3.9 million exists for this portion of the NOL. For federal tax purposes, the Company has utilized its ability to carry losses back prior to 2017. Approximately $1.2 million remains as a tax effected federal net operating loss carryforward, which the Company believes it will be able to utilize before expiration.

As of December 31, 2017 the Company had approximately $0.7 million of AMT available that do not expire. As part of the Act, any remaining AMT after 2017 will be refunded to the Company beginning in 2018 through 2021, and therefore, the Company reclassified the existing balance from a deferred tax asset to an other non-current asset as of December 31, 2017.

Uncertain Tax Benefits

The Company and its subsidiaries file consolidated federal income tax returns in the United States and also file in various states. With few exceptions, the Company remains subject to federal and state income tax examinations for the years of 2012, 2013, 2014, 2015, and 2016. As of December 31, 2017, the Company had approximately $1.6 million of total unrecognized tax benefits as a result of uncertain tax positions. As of December 31, 2016 and 2015, the Company had not recorded unrecognized tax benefits for any uncertain tax positions. The Company does not expect that unrecognized tax benefits as of December 31, 2017 for certain federal income tax matters will significantly change over the next 12 months. The final outcome of these uncertain tax positions is not yet determinable. Our uncertain tax benefits, if recognized, would affect the Company's effective tax rate. The change in the total gross unrecognized tax benefits and prior year audit resolutions of the Company during the year ended December 31, 2017 is reconciled in the table below:



	2017
Balances at beginning of the year	$	—
Additions based on tax position related to current year	—
Additions based on tax positions related to prior years	1,614
Reductions based on tax positions related to current year	—
Reductions based on tax positions related to prior years	—
Settlements with tax authorities	—
Lapse of statute of limitations	—
Balance at the end of year	$	1,614

The Company’s policy is to recognize interest and penalties related to any unrecognized tax liabilities as additional tax expense. No interest or penalties have been accrued at December 31, 2017, 2016 and 2015. The Company believes it has appropriate and adequate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. Although the Company believes its recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore the Company’s assessments can involve both a series of complex judgments about future events and rely heavily on estimates and assumptions. Although the Company believes that the estimates and assumptions supporting its assessments are reasonable, the final determination of tax audit settlements and any related litigation could be materially different from that which is reflected in historical income tax provisions and recorded assets and liabilities. If the Company were to settle an audit or a matter under litigation, it could have a material effect on the income tax provision, net income, or cash flows in the period or periods for which that determination is made. Any accruals for tax contingencies are provided for in accordance with U.S. GAAP.

The Company does not believe that its tax positions will significantly change due to any settlement and/or expiration of statutes of limitations prior to December 31, 2018.