Income Taxes

As a REIT, we are permitted to own lodging properties but are prohibited from operating these properties. In order to comply with applicable REIT qualification rules, we enter into leases for each of our lodging properties with TRS lessees. The TRS lessees in turn contract with independent hotel management companies that manage day-to-day operations of our hotels under the oversight of the Subadvisor.

The components of our provision for income taxes for the periods presented are as follows (in thousands):



	Years Ended December 31,
	2019			2018		2017
Federal
Current	$	1,953		$	2,227	$	2,787
Deferred	(1,873		)	141		248
	80			2,368		3,035

State and Local
Current	425			873		880
Deferred	(420		)	18		(15		)
	5			891		865
Total Provision	$	85		$	3,259	$	3,900

Deferred income taxes at December 31, 2019 and 2018 consist of the following (in thousands):



	At December 31,
	2019			2018
Deferred Tax Assets
Deferred revenue — key money	$	1,478		$	1,696
Accrued vacation payable and deferred rent	1,544			1,265
Net operating loss carryforwards	785			617
Interest expense limitation	39			—
Gift card liability	1			2
Other	403			453
Total deferred income taxes	4,250			4,033
Valuation allowance	(782		)	(2,956		)
Total deferred tax assets	3,468			1,077
Deferred Tax Liabilities
Deferred rent	(119		)	—
Other	(80		)	(100		)
Total deferred tax liabilities	(199		)	(100		)
Net Deferred Tax Asset	$	3,269		$	977

A reconciliation of the provision for income taxes with the amount computed by applying the statutory federal income tax rate to income before provision for income taxes for the periods presented is as follows (dollars in thousands):



	Years Ended December 31,
	2019			2018			2017
Pre-tax income from taxable subsidiaries	$	12,016		$	13,768		$	9,581

Federal provision at statutory tax rate ^(a)	$	2,524		$	2,892		$	3,353
Valuation allowance	(2,174		)	(127		)	(1,020		)
Income not subject to federal tax	(513		)	(555		)	(1,102		)
State and local taxes, net of federal provision	387			539			644
Other	(174		)	477			126
Non-deductible expenses	35			33			42
Revaluation of deferred taxes due to Tax Cuts and Jobs Act ^(b)	—			—			1,857
Total provision	$	85		$	3,259		$	3,900

___________


(a)	The applicable statutory tax rate was 21%, 21%, and 35% for the years ended December 31, 2019, 2018 and 2017, respectively.


(b)	The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, lowered the U.S. corporate income tax rate from 35% to 21%. This amount reflects the net impact of the Tax Cuts and Jobs Act on our domestic TRSs.

The utilization of net operating losses may be subject to certain limitations under the tax laws of the relevant jurisdiction. At December 31, 2019, we had federal net operating losses that may be carried forward indefinitely and no state or local net operating losses. As of December 31, 2019 and 2018, we recorded a valuation allowance of $0.8 million and $3.0 million, respectively, related to these net operating loss carryforwards and other deferred tax assets. The decrease in the valuation allowance was primarily the result of the release of a $2.3 million valuation allowance for deferred tax assets during the first quarter of 2019 related to Marriott Sawgrass Golf Resort & Spa, due to, in part, the TRS achieving three years of cumulative pre-tax income during the current year period. We determined that there was sufficient positive evidence to conclude that it is more likely than not that the deferred taxes of $2.3 million are realizable.

The net deferred tax assets in the table above are comprised of deferred tax asset balances, net of certain deferred tax liabilities and valuation allowances, of $3.3 million and $1.0 million at December 31, 2019 and 2018, respectively, which are included in Other assets in the consolidated balance sheets.

Our taxable subsidiaries recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the financial statements.

We had no unrecognized tax benefits at December 31, 2019 and 2018.

Our tax returns are subject to audit by taxing authorities. The statute of limitations varies by jurisdiction and ranges from three to four years. Such audits can often take years to complete and settle. The tax years 2015 through 2018 remain open to examination by the major taxing jurisdictions to which we are subject.