Income Tax Expense

12 Months Ended

Dec. 31, 2019

Income Tax Expense

As a partnership, we are generally not subject to federal income tax and most state income taxes. However, the Partnership conducts certain activities through corporate subsidiaries which are subject to federal and state income taxes. The components of the federal and state income tax expense (benefit) are summarized as follows:



	Year Ended December 31,
	2019			2018			2017
	(in millions)
Current:
Federal	$	7		$	24		$	—
State	(30		)	4			2
Total current income tax expense (benefit)	(23		)	28			2
Deferred:
Federal	2			(14		)	(302		)
State	4			20			(6		)
Total deferred tax expense (benefit)	6			6			(308		)
Net income tax expense (benefit)	$	(17	)	$	34		$	(306	)

Our effective tax rate differs from the statutory rate primarily due to Partnership earnings that are not subject to U.S. federal and most state income taxes at the Partnership level. A reconciliation of income tax expense at the U.S. federal statutory rate to net income tax expense (benefit) is as follows:



	Year Ended December 31,
	2019			2018			2017
	(in millions)
Tax at statutory federal rate	$	62		$	19		$	7
Partnership earnings not subject to tax	(62		)	(9		)	(126		)
Goodwill impairment	—			—			36
State and local tax, including federal expense (benefit)	(17		)	24			(6		)
Statutory rate change	—			—			(225		)
Other	—			—			8
Net income tax expense (benefit)	$	(17	)	$	34		$	(306	)

In 2019, a current state income tax benefit (including federal benefit) of $17 million was largely attributable to a change in estimate related to state income taxes.

In December 2017, the “Tax Cuts and Jobs Act” was signed into law. Among other provisions, the highest corporate federal income tax rate was reduced from 35% to 21% for taxable years beginning after December 31, 2017. As noted above, the effect on deferred tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. As such, a deferred tax benefit in the amount of $225 million was realized in 2017.

Deferred taxes result from the temporary differences between financial reporting carrying amounts and the tax basis of existing assets and liabilities. Principal components of deferred tax assets and liabilities are as follows:



	December 31, 2019		December 31, 2018
	(in millions)
Deferred tax assets:
Environmental, asset retirement obligations, and other reserves	$	—	$	12
Inventories	—		2
Net operating and other loss carry forwards	4		—
Other	32		49
Total deferred tax assets	36		63
Deferred tax liabilities:
Property and equipment	24		63
Trademarks and other intangibles	72		63
Investments in affiliates	39		15
Other	10		25
Total deferred tax liabilities	145		166
Net deferred income tax liabilities	$	109	$	103

The following table sets forth the changes in unrecognized tax benefits:



	Years Ended December 31,
	2019		2018		2017
	(in millions)
Balance at beginning of year	$	—	$	—	$	—
Additions attributable to tax positions taken in the current year	—		—		—
Additions attributable to tax positions taken in prior years	11		—		—
Reduction attributable to tax positions taken in prior years	—		—		—
Lapse of statute	—		—		—
Balance at end of year	$	11	$	—	$	—

As of December 31, 2019, we have $11 million ($8 million after federal income tax benefits) related to tax positions which, if recognized, would impact our effective tax rate.

Our policy is to accrue interest and penalties on income tax underpayments (overpayments) as a component of income tax expense. We did not have any material interest and penalties in the periods presented.

The Partnership and its subsidiaries are no longer subject to examination by the Internal Revenue Service (“IRS”) and most state jurisdictions for 2014 and prior years.