Income Taxes

9 Months Ended

Sep. 30, 2019

The Company is the sole managing member of Pla-Fit Holdings, which is treated as a partnership for U.S. federal and certain state and local income taxes. As a partnership, Pla-Fit Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Pla-Fit Holdings is passed through to and included in the taxable income or loss of its members, including the Company, on a pro-rata basis.

Planet Fitness, Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income of Pla-Fit Holdings. The Company’s effective tax rate was 25.8% and 26.0% for the three months ended September 30, 2019 and 2018, respectively and 21.0% and 23.9% for the nine months ended September 30, 2019 and 2018, respectively. The effective tax rate for the three months ended September 30, 2019 differed from the U.S. federal statutory rate of 21% primarily due to state and local taxes, partially offset by income attributable to non-controlling interest. The effective tax rate for the nine months ended September 30, 2019 of 21% included the impact of state and local taxes, offset by income attributable to non-controlling interest. The Company was also subject to taxes in foreign jurisdictions. Undistributed earnings of foreign operations were not material for the three and nine months ended September 30, 2019 and 2018.

Net deferred tax assets of $416,678 and $412,538 as of September 30, 2019 and December 31, 2018, respectively, relate primarily to the tax effects of temporary differences in the book basis as compared to the tax basis of our investment in Pla-Fit Holdings as a result of the secondary offerings, other exchanges, recapitalization transactions and the IPO. As of September 30, 2019, the Company does not have any net operating loss carryforwards.

As of September 30, 2019 and December 31, 2018, the total liability related to uncertain tax positions was $260 and $300, respectively. The Company recognizes interest accrued and penalties, if applicable, related to unrecognized tax benefits in income tax expense. Interest and penalties for the three and nine months ended September 30, 2019 and 2018 were not material.

Tax benefit arrangements

The Company’s acquisition of Holdings Units in connection with the IPO and future and certain past exchanges of Holdings Units for shares of the Company’s Class A common stock (or cash at the option of the Company) are expected to produce and have produced favorable tax attributes. In connection with the IPO, the Company entered into two tax receivable agreements. Under the first of those agreements, the Company generally is required to pay to certain existing and previous equity owners of Pla-Fit Holdings (the “TRA Holders”) 85% of the applicable tax savings, if any, in U.S. federal and state income tax that the Company is deemed to realize as a result of certain tax attributes of their Holdings Units sold to the Company (or exchanged in a taxable sale) and that are created as a result of (i) the exchanges of their Holdings Units for shares of Class A common stock and (ii) tax benefits attributable to payments made under the tax receivable agreement (including imputed interest). Under the second tax receivable agreement, the Company generally is required to pay to TSG AIV II-A L.P and TSG PF Co-Investors A L.P. (the “Direct TSG Investors”) 85% of the amount of tax savings, if any, that the Company is deemed to realize as a result of the tax attributes of the Holdings Units held in respect of the Direct TSG Investors’ interest in the Company, which resulted from the Direct TSG Investors’ purchase of interests in Pla-Fit Holdings in 2012, and certain other tax benefits. Under both agreements, the Company generally retains the benefit of the remaining 15% of the applicable tax savings.

During the nine months ended September 30, 2019, 885,810 Holdings Units were exchanged by the TRA Holders for newly issued shares of Class A common stock, resulting in an increase in the tax basis of the net assets of Pla-Fit Holdings subject to the provisions of the tax receivable agreements. As a result of the change in Planet Fitness, Inc.’s ownership percentage of Pla-Fit Holdings, we recorded a decrease to our net deferred tax assets of $517 during the nine months ended September 30, 2019. As a result of these exchanges, during the nine months ended September 30, 2019, we also recognized deferred tax assets in the amount of $20,340, and corresponding tax benefit arrangement liabilities of $17,016, representing approximately 85% of the tax benefits due to the TRA Holders. The offset to the entries recorded in connection with exchanges was to equity.

As of September 30, 2019 and December 31, 2018, the Company had a liability of $433,390 and $429,233, respectively, related to its projected obligations under the tax benefit arrangements. Projected future payments under the tax benefit arrangements are as follows:



	Amount
Remainder of 2019	$	7,307
2020	25,965
2021	26,584
2022	27,141
2023	27,679
Thereafter	318,714
Total	$	433,390