Income Taxes

12 Months Ended

Dec. 31, 2019

We are organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) and, accordingly, we have not provided for U.S. federal income tax on our REIT taxable income that we distribute to our stockholders. We have elected to treat our subsidiaries that participate in certain non-REIT qualifying activities, and our foreign subsidiaries, as taxable REIT subsidiaries (“TRSs”). As such, we have provided for their federal, state and foreign income taxes.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act amends the Code to reduce tax rates and modify policies, credits and deductions. The Tax Act’s most significant change was the reduction of the federal tax rate from a maximum of 35% to a flat rate of 21%.

Cash paid for income taxes was $10.5 million in 2019, $8.4 million in 2018 and $6.8 million in 2017.

The U.S. and foreign components of Income before provision for income taxes and equity in earnings of investee companies were as follows:



	Year Ended December 31,
(in millions)	2019		2018			2017
United States	$	144.3	$	157.3		$	139.2
Foreign	1.5		(48.6		)	(14.1		)
Income before provision for income taxes and equity in earnings of investee companies	$	145.8	$	108.7		$	125.1

The following table reconciles Income before provision for income taxes and equity in earnings of investee companies to REIT taxable income.



	Year Ended December 31,
(in millions)	2019			2018			2017
Income before provision for income taxes and equity in earnings of investee companies	$	145.8		$	108.7		$	125.1
Net (income) loss of TRSs	(16.4		)	38.4			(2.4		)
Income from REIT operations	129.4			147.1			122.7
Book depreciation in excess of tax depreciation	21.5			24.4			29.5
Book amortization in excess of tax amortization	(6.8		)	(10.6		)	(1.8		)
Tax dividend from foreign subsidiary^(a)	0.5			2.1			5.6
Book/tax differences - stock-based compensation	1.5			(1.4		)	(2.2		)
Book/tax differences - deferred gain for tax	(3.2		)	(1.4		)	(13.1		)
Book/tax differences - capitalized costs	5.0			6.4			5.7
Book/tax differences - executive compensation	7.8			7.5			1.1
Book/tax differences - leases	6.2			1.5			2.8
Book/tax differences - other	9.4			2.1			(4.1		)
REIT taxable income (estimated)	$	171.3		$	177.7		$	146.2


(a)	In 2017, the tax dividend from foreign subsidiary consists of a $12.6 million one-time deemed repatriation of foreign unremitted earnings under the Tax Act, net of a $7.0 million deduction for dividends received.

The components of the Provision for income taxes are as follows:



	Year Ended December 31,
(in millions)	2019			2018			2017
Current:
Federal	$	(5.3	)	$	(2.4	)	$	(6.9	)
State and local	(4.0		)	(2.3		)	(2.2		)
Foreign	(1.4		)	(0.6		)	0.1
	(10.7		)	(5.3		)	(9.0		)
Deferred tax benefit (liability):
Federal	0.3			(1.0		)	(2.2		)
State and local	0.2			(0.4		)	(0.1		)
Foreign	(0.7		)	1.8			7.2
	(0.2		)	0.4			4.9
Provision for income taxes	$	(10.9	)	$	(4.9	)	$	(4.1	)

The effective income tax rate was 7.5% in 2019, 4.7% in 2018 and 3.3% in 2017.

The difference between income taxes expected at the U.S. federal statutory income tax rate of 21% in 2019 and 2018 and 35% in 2017, and the Provision for income taxes is summarized as follows:



	Year Ended December 31,
(in millions)	2019			2018			2017
Provision for income taxes on income at U.S. statutory rate	$	(31.6	)	$	(22.8	)	$	(43.8	)
REIT dividends paid deduction	27.9			30.9			42.9
State and local taxes, net of federal tax benefit	(2.7		)	(2.3		)	(1.6		)
Effect of foreign operations	(1.5		)	(9.3		)	2.4
Resolution of prior year tax	(3.0		)	—			—
Effect of the Tax Act on net deferred tax assets^(a)	—			—			(2.1		)
Gain on dispositions	(0.3		)	(0.5		)	(0.9		)
Other, net	0.3			(0.9		)	(1.0		)
Provision for income taxes	$	(10.9	)	$	(4.9	)	$	(4.1	)


(a)	Impact on our net deferred tax assets resulting from the Tax Act’s reduction of corporate income tax rates from 35% to 21% for tax years beginning after December 31, 2017.

The following table is a summary of the components of deferred income tax assets and liabilities.



	As of December 31,
(in millions)	2019			2018
Deferred income tax assets:
Provision for expenses and losses	$	0.3		$	1.1
Postretirement and other employee benefits	2.4			3.6
Tax credit and loss carryforwards	0.4			0.8
Total deferred income tax assets	3.1			5.5
Valuation allowance	(0.4		)	—
Deferred income tax assets, net	2.7			5.5

Deferred income tax liabilities:
Property, equipment and intangible assets	(18.3		)	(19.5		)
Total deferred income tax liabilities	(18.3		)	(19.5		)

Deferred income tax liabilities, net	$	(15.6	)	$	(14.0	)

As of December 31, 2019, we had net operating loss carryforwards for Canadian jurisdictions of $1.4 million, which expire in various years from 2020 through 2037.

Our undistributed earnings of foreign subsidiaries not includable in our federal income tax returns that could be subject to additional income taxes if remitted was approximately $6.4 million as of December 31, 2019, and $6.2 million as of December 31, 2018. No provision was recorded for taxes that could result from the remittance of such undistributed earnings since we intend to declare dividends to our shareholders in an amount sufficient to offset such distributions and intend to reinvest the remainder outside of the U.S. indefinitely. The determination of the unrecognized U.S. federal deferred income tax liability for undistributed earnings is not practicable.

The reserve for uncertain tax positions of $0.5 million as of December 31, 2019, includes $0.3 million which would affect our effective income tax rate if and when recognized in future years.

We recognize interest and penalty charges related to the reserve for uncertain tax positions as part of income tax expense. These charges were not material for any of the periods presented.

We are subject to taxation in the U.S. and various state, local and foreign jurisdictions. Tax years 2016 to present are open for examination by the tax authorities. New York State has concluded an audit of our 2014 and 2015 tax years without proposing any adjustments.

In the second quarter of 2019, we had recorded a provision for uncertain tax positions of $4.5 million to correct an error related to prior open tax years. In the third quarter of 2019, pursuant to an audit for the 2016 tax year, the Internal Revenue Service has issued a report of Income Tax Examination Changes, increasing our tax liability by $2.2 million, which represents a settlement of the $4.5 million provision for uncertain tax positions recorded in the second quarter of 2019.