Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

(7) Income Taxes

The components of our income tax expense are as follows (in millions):

	Year Ended December 31,
	2021		2020		2019
Current income tax expense	$	(0.8)	$	(1.1)	$	—
Deferred tax expense	(24.6)		(142.1)		(6.9)
Total income tax expense	$	(25.4)	$	(143.2)	$	(6.9)

The following schedule reconciles total income tax expense and the amount calculated by applying the statutory U.S. federal tax rate to income before income taxes (in millions):

	Year Ended December 31,
	2021		2020		2019
Expected income tax benefit (expense) based on federal statutory tax rate	$	(10.0)	$	58.5	$	233.6
State income tax benefit (expense), net of federal benefit	(1.4)		6.5		27.0
Unit-based compensation (1)	(3.1)		(6.0)		(2.2)
Non-deductible expense related to impairments	—		(43.4)		(264.5)
Statutory rate changes (2)(3)	(10.2)		—		—
Change in valuation allowance (3)	1.7		(153.3)		—
Other	(2.4)		(5.5)		(0.8)
Total income tax expense	$	(25.4)	$	(143.2)	$	(6.9)

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(1)Related to book-to-tax differences recorded upon the vesting of restricted incentive units.

(2)Effective January 1, 2022, Oklahoma House Bill 2960 resulted in a change in the corporate income tax rate from 6% to 4% and Louisiana Senate Bill No. 159 resulted in a change in the corporate income tax rate from 8% to 7.5%. Accordingly, we recorded deferred tax expense related to our Oklahoma and Louisiana operations in the amount of $7.6 million and $2.6 million, respectively, for the year ended December 31, 2021 due to a remeasurement of deferred tax assets.

(3)Includes the remeasurement of the state deferred tax liabilities, but were partially offset by a change in state apportionment, and its impact on the valuation allowance for the year ended December 31, 2021.

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax liabilities, net of deferred tax assets, are included in “Deferred tax liability, net” in the consolidated balance sheets. Our deferred income tax assets and liabilities as of December 31, 2021 and 2020 are as follows (in millions):

	December 31, 2021		December 31, 2020
Deferred income tax assets:
Federal net operating loss carryforward	$	573.6	$	488.3
State net operating loss carryforward	59.6		61.0
Total deferred tax assets, gross	633.2		549.3
Valuation allowance	(151.6)		(153.3)
Total deferred tax assets, net of valuation allowance	481.6		396.0
Deferred tax liabilities:
Property, plant, equipment, and intangible assets (1)	(619.1)		(504.6)
Total deferred tax liabilities	(619.1)		(504.6)
Deferred tax liability, net	$	(137.5)	$	(108.6)

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(1)Includes our investment in ENLK and primarily relates to differences between the book and tax bases of property and equipment.

As a result of the Merger, we acquired all issued and outstanding ENLK common units that were not already held by us or our subsidiaries in exchange for the issuance of ENLC common units. This was a taxable exchange to our unitholders, and we received a step-up in tax basis of the underlying assets acquired. In accordance with ASC 810, Consolidation, the step-up in our basis reduced our deferred tax liability by $399.0 million at the time of the Merger.

As of December 31, 2021, we had federal net operating loss (“NOL”) carryforwards of $2.7 billion that represent a net deferred tax asset of $573.6 million. As of December 31, 2021, we had state NOL carryforwards of $1.3 billion that represent a net deferred tax asset of $59.6 million. These carryforwards will begin expiring in 2028 through 2040. Federal NOLs incurred in 2018 and in future years (approximately $2.5 billion of our federal NOL carryforwards) may be carried forward indefinitely, but the deductibility of such federal NOLs is limited, while federal NOLs incurred prior to 2018 (approximately $0.2 billion of our NOL carryforwards) may be carried forward for only twenty years, but the deductibility of such NOL carryforwards generally is not limited unless we were to undergo a Section 382 “ownership change.”

A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized. We established a valuation allowance of $153.3 million as of December 31, 2020, primarily related to federal and state tax operating loss carryforwards for which we do not believe a tax benefit is more likely than not to be realized. For the year ended December 31, 2021, we recorded a $1.7 million valuation allowance adjustment. As of December 31, 2021, management believes it is more likely than not that the Company will realize the benefits of the deferred tax assets, net of valuation allowance.

For the years ended December 31, 2021 and 2020, there was no recorded unrecognized tax benefit. Per our accounting policy election, penalties and interest related to unrecognized tax benefits are recorded to income tax expense. As of December 31, 2021, tax years 2017 through 2021 remain subject to examination by various taxing authorities.