Note 15. Income Taxes

The provision for income taxes differed from the amount computed by applying the statutory U.S. federal rate of 35% primarily due to the tax impact of equity in earnings, the tax impact of noncontrolling interest, a permanent difference between the amount recognized as deductible for U.S. GAAP and tax purposes related to board of director share-based compensation, and state tax rates (net of federal benefit) in various jurisdictions, most significantly California. All tax expense, other than minimum state tax payments, after the IPO closing date is deferred tax expense and the Partnership has not paid any cash taxes in the period after the IPO closing date covered by these consolidated financial statements.

The Partnership’s financial reporting year-end is November 30 while its tax year-end is December 31. The Partnership has elected to base the tax provision on the financial reporting year; therefore, since the 2016 financial reporting year is December 1, 2015 through November 30, 2016, the taxable income (loss) included in the 2016 tax provision is for the tax year ended December 31, 2015. The provision accrued at the financial reporting year-end will be a discrete period computation, and the tax credits and permanent differences recognized in that accrual will be those generated between the tax year-end date and the financial reporting year-end date. Any amounts recorded for income tax provision (benefit) represent deferred income taxes being provided on the net income before taxes of OpCo, a non-taxable partnership, which is allocated to the Partnership.

Although organized as a limited partnership under state law, the Partnership elected to be treated as a corporation for U.S. federal income tax purposes. Accordingly, the Partnership is subject to U.S. federal income taxes at regular corporate rates on its net taxable income, and distributions it makes to holders of its Class A shares will be taxable as ordinary dividend income to the extent of its current and accumulated earnings and profits as computed for U.S. federal income tax purposes.

Income tax benefit (expense) consists of the following:

	Year Ended			Eleven Months Ended			Year Ended
	November 30,			November 30,			December 28,
(in thousands)	2016			2015			2014
Income (loss) before income taxes	$	12,813		$	(20,563	)	$	(1,193	)
Income tax expense:
Current tax expense
Federal		—			—			—
State		(2	)		(12	)		(23	)
Total current tax expense	$	(2	)	$	(12	)	$	(23	)
Deferred tax expense
Federal	$	(18,242	)	$	(10,929	)	$	—
State		—			(1,562	)		—
Total deferred tax expense		(18,242	)		(12,491	)		—
Income tax expense	$	(18,244	)	$	(12,503	)	$	(23	)

For the year ended November 30, 2016, the current tax expense is related to minimum state tax payments due and remitted for the tax year ended December 31, 2015.

The income tax expense differs from the amounts obtained by applying the statutory U.S. federal tax rate to income before taxes as shown below:

	Year Ended			Eleven Months Ended			Year Ended
	November 30,			November 30,			December 28,
(in thousands)	2016			2015			2014
Statutory rate		35	%		35	%		35	%
Tax benefit (expense) at U.S. statutory rate	$	(4,484	)	$	7,197		$	418
Noncontrolling interest		(9,495	)		(10,201	)		—
Equity in Earnings		(1,892	)		(893	)		—
State income taxes		(2,331	)		(1,574	)		(23	)
Other		(42	)		(3	)		—
Deferred taxes not benefited		—			(7,029	)		(418	)
Total	$	(18,244	)	$	(12,503	)	$	(23	)
Effective tax rate		142.4	%	-60.8%				-1.9	%

The income tax effects of temporary differences giving rise to the Partnership's deferred income tax liabilities and assets are as follows:

	Year Ended			Eleven Months Ended			Year Ended
	November 30,			November 30,			December 28,
(in thousands)	2016			2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	3,948		$	41		$	64,550
Deferred lease revenue		—			—			1,084
Total deferred tax assets		3,948			41			65,634
Valuation allowance		—			—			(24,430	)
Total deferred tax assets, net of valuation allowance		3,948			41			41,204
Deferred tax liabilities:
Outside basis difference in partnership		(34,681	)		(12,544	)		—
Fixed asset basis difference		—			—			(41,204	)
Total deferred tax liabilities		(34,681	)		(12,544	)		(41,204	)
Net deferred tax asset (liability)	$	(30,733	)	$	(12,503	)	$	—

At November 30, 2016, the Partnership had federal and aggregate state net operating loss carryforwards of $3.4 million and $0.5 million, respectively. If not used, the federal net operating loss carryforwards will expire beginning in 2035, and the state net operating loss carryforwards will begin to expire in 2035, with the exception of Vermont’s net operating loss carryforwards which will begin expiring in 2025. No valuation allowance was established to offset the net operating loss carryforward since the Partnership expects to fully be able to realize the losses in future years before they expire, based on future projections, including the future reversal of existing taxable temporary differences. No uncertain tax positions have been identified for the year ended November 30, 2016 or for the tax year ended December 31, 2015.

The Predecessor’s loss for the period from December 28, 2014 to the date of the IPO was approximately $20.1 million or $7.0 million tax-effected. The Predecessor’s federal and state net operating loss carryforwards discussed below relate to the prior years and do not carryover as tax attributes of the Partnership since tax attributes do not carryover after an asset acquisition. The notes below are intended only to provide an explanation of the amounts during the Predecessor period and do not apply to the current period.

Net operating loss carryforwards as of December 28, 2014 represent tax benefits measured assuming the Predecessor had been a stand-alone operating company since December 30, 2012, and will not be available if the Predecessor is no longer part of the Parent’s return. As of December 28, 2014, the Predecessor had federal net operating loss carryforwards of $168.4 million for tax purposes. These federal net operating loss carryforwards will expire at various dates from 2029 to 2034. As of December 28, 2014, the Predecessor had California state net operating loss carryforwards of approximately $72.6 million for tax purposes. These California net operating loss carryforwards will expire at various dates from 2031 to 2034. The Predecessor’s ability to utilize a portion of the net operating loss and credit carryforwards is dependent upon the Predecessor being able to generate taxable income in future periods and may be limited due to restrictions imposed on utilization of net operating loss and credit carryforwards under federal and state laws upon a change in ownership.

The valuation allowance recorded as of December 28, 2014 assumes the Predecessor had been a stand-alone operating company since January 2, 2011. The deferred tax assets were determined by assessing both positive and negative evidence. When determining whether it is more likely than not that deferred assets are recoverable the Predecessor believes that sufficient uncertainty exists with regard to the realizability of these assets such that a valuation allowance is necessary. Factors considered in providing a valuation allowance include the lack of a significant history of consistent profits, the lack of consistent profitability in the solar industry, and the lack of carryback capacity to realize these assets, and other factors. Based on the absence of sufficient positive objective evidence, the Predecessor is unable to assert that it is more likely than not that it will generate sufficient taxable income to realize these remaining net deferred tax assets. Should the Predecessor achieve a certain level of profitability in the future, it may be in a position to reverse the valuation allowance which would result in a non-cash income statement benefit.

Accounting guidelines prescribes a more-likely-than-not recognition threshold and establishes measurement requirements for financial statement reporting of income tax positions which the Predecessor has adopted. The Predecessor has assessed the impact of these accounting guidelines and has concluded there is no material impact on its carve-out financial statements. As of December 28, 2014, there were no material uncertain tax positions. The open tax years are 2012, 2013 and 2014.