Income Taxes

12 Months Ended

Dec. 31, 2019

The components of the (benefit) expense from income taxes are comprised of the following for the years ended December 31:



	2019			2018			2017
Current
Federal	$	(6.4	)	$	(3.2	)	$	(1.1	)
State	(12.6		)	3.2			1.2
	(19.0		)	—			0.1
Deferred
Federal	(5.8		)	6.2			(44.8		)
State	4.4			(1.6		)	3.5
	(1.4		)	4.6			(41.3		)
(Benefit) expense from income taxes	$	(20.4	)	$	4.6		$	(41.2	)

For fiscal 2019, 2018 and 2017, the federal statutory rate in effect was 21%, 21% and 35%, respectively. A reconciliation between the benefit or expense from income taxes and the expected tax benefit or expense using the federal statutory rate in effect for the years ended December 31 is as follows:



	2019			2018			2017
Amount computed using statutory rates	$	(5.7	)	$	3.0		$	(1.0	)
State income taxes, net of federal benefit	(4.1		)	(1.8		)	(3.3		)
Benefit from stock option exercises	(2.4		)	—			—
Acquisition related costs	1.9			—			—
Net effect of changes in tax rates	—			—			(0.3		)
Uncertain tax positions and interest	(28.1		)	0.5			0.5
Nondeductible expenses	1.6			0.5			1.5
Net effect of change in U.S. Tax Law	—			—			(40.4		)
Other	0.2			0.2			0.6
Valuation allowance	16.2			2.2			1.2
(Benefit) expense from income taxes	$	(20.4	)	$	4.6		$	(41.2	)

The Company’s deferred tax assets and liabilities relate to the following sources and differences between financial accounting and the tax basis of the Company’s assets and liabilities at December 31:



	2019			2018
Deferred tax assets
Allowance for doubtful accounts	$	1.2		$	1.2
Insurance reserve	12.9			12.5
Net operating loss	115.5			100.7
Accrued bonus and vacation	4.7			4.1
Stock compensation	5.2			6.0
Tax credits	1.9			1.7
Other	9.9			12.0
Total deferred tax assets	151.3			138.2
Valuation allowance	(23.0		)	(15.4		)
Deferred tax assets less valuation allowance	128.3			122.8
Deferred tax liabilities
Fixed asset basis	(101.2		)	(82.9		)
Intangible basis	(69.9		)	(70.9		)
Landfill and environmental remediation liabilities	(41.1		)	(52.3		)
Other	(4.6		)	(7.8		)
Deferred tax liabilities	(216.8		)	(213.9		)
Net deferred tax liability	$	(88.5	)	$	(91.1	)

The amounts recorded as deferred tax assets as of December 31, 2019 and 2018 represent the amounts of tax benefits of existing deductible temporary differences or net operating loss carryforwards ("NOLs"). Realization of deferred tax assets is dependent upon the generation of sufficient taxable income prior to expiration of any loss carryforwards. The Company has established valuation allowances for uncertainties in realizing the benefit of certain tax loss and credit carryforwards. A valuation allowance has been recorded against deferred tax assets as of December 31, 2019 in the amount of $23.0. The valuation allowance for the year ended December 31, 2018 was $15.4. While the company expects to realize the deferred tax assets, net of the valuation allowances, changes in estimates of future taxable income or in tax laws may alter this expectation.

On December 22, 2017, the Tax Cut and Jobs Act (the "Act") was signed into law. In accordance with SAB-118, The Company recognized the estimated impact of this legislation as a component of the benefit for income taxes during the fourth quarter of 2017. During the fourth quarter of 2018, the company completed its analysis of the impacts of the Act, and no additional impacts were identified.

The Company had available federal NOL carryforwards of approximately $406.3 and $349.1 at December 31, 2019 and 2018 respectively. The Company has $358.9 of federal NOLs that have expiration dates beginning in the year 2021 through 2036 if not utilized against taxable income. The Company has $47.4 of federal NOLs that have an indefinite carryforward.

With the completion of the IPO in the fourth quarter of 2016, the Company experienced an ownership change pursuant to Section 382 of the Internal Revenue Code ("IRC"). This limitation is not expected to have an impact in the Company's ability to fully utilize its NOLs before expiration. Additionally, the Company has grown through a series of acquisitions and mergers and has had historic change of control events that resulted in limitations on the utilization of certain NOLs. Approximately $71.9 of the NOLs from continuing operations are limited under the SRLY rules of the IRC. These NOLs are only available to be utilized against taxable income of the HWStar Waste Holdings Corp. and subsidiaries thereof, a wholly-owned subsidiary of the Company. At this time, the Company expects to utilize these NOLs.

A predecessor of the Company had a transaction on November 1, 2005 that was treated as a reorganization. The Company estimates that it is subject to an annual limitation of approximately $4.2 on NOLs of approximately $30.8 originating prior to November 1, 2005.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for fiscal 2019, 2018 and 2017 is as follows:



	2019			2018		2017
Balance at January 1,	$	27.6		$	27.5	$	7.5
Additions based on tax positions of prior years	—			—		20.4
Change to prior tax positions due to tax rate changes	—			—		(0.4		)
Additions based on tax positions of current year	—			0.1		—
Reduction due to settlements with tax authorities	(27.6		)	—		—
Balance at December 31,	$	—		$	27.6	$	27.5

Prior to the acquisition in fiscal 2012, Veolia ES Solid Waste division was part of a consolidated group and was subject to IRS and state examinations dating back to 2004. Pursuant to the terms of the acquisition of Veolia ES Solid Waste, Inc., the Company is entitled to certain indemnifications for Veolia ES Solid Waste Division's pre-acquisition tax liabilities. During fiscal 2019, the IRS and Veolia reached closure on the open tax matters which included open matters related to the Veolia ES Solid Waste division. This settlement will effectively close out the open tax years of 2004 - 2012 for Veolia ES Solid Waste division creating a net tax benefit for the Company. The settlement was the primary driver of the $20.4 net tax benefit during fiscal 2019. Also, as a result of the settlement, the Company recorded a charge to other expense of $3.9 to write off an indemnification receivable that was recorded as part of the 2012 purchase accounting.

The Company recognizes interest expense related to unrecognized tax benefits in tax expense. During the tax years ended December 31, 2019, 2018 and 2017, respectively, the Company recognized approximately $0.0, $0.4, and $0.5, respectively, of such interest expense as a component of the “Provision for Income Taxes”.

The Company had approximately $0.0 and $3.2 of accrued interest and $0.0 and $0.6 of accrued penalties in its balance sheet as of December 31, 2019 and 2018, respectively.

The Company and its subsidiaries are subject to income tax in the United States at the federal, state, and local jurisdictional levels. The company has open tax years dating back to 2003. During 2018, the state of Florida completed an audit of the company's 2014-2016 tax years with no changes identified.