Income Taxes

Domestic and foreign components of Income (loss) before income taxes are shown below:



	Years Ended December 31,
In millions	2017			2016			2015
Domestic	$	180.1		$	118.3		$	144.6
Foreign	(5.3		)	(31.3		)	(8.1		)
Total	$	174.8		$	87.0		$	136.5

The provision (benefit) for income taxes consisted of:



	Years Ended December 31,
In millions	2017			2016			2015
Current
Federal	$	51.6		$	37.4		$	35.3
State and local	3.7			5.0			5.0
Foreign	—			2.1			2.7
Total current	$	55.3		$	44.5		$	43.0
Deferred
Federal	$	(25.3	)	$	(2.4	)	$	7.4
State and local	(1.3		)	(0.5		)	1.7
Foreign	0.9			1.0			0.1
Total deferred	$	(25.7	)	$	(1.9	)	$	9.2

Provision (benefit) for income taxes	29.6			42.6			52.2

We recorded $0.4 million, $0.3 million and zero of deferred tax benefit in components of other comprehensive income during the years ended December 31, 2017, 2016 and 2015, respectively.

The following table summarizes the major differences between taxes computed at the U.S. federal statutory rate and the actual income tax provision attributable to operations:



	Years Ended December 31,
In millions, except percentage data	2017			2016			2015

Federal statutory tax rate	$	61.2		$	30.5		$	47.8
State and local income taxes, net of federal benefit	2.4			2.8			4.9
Foreign income tax rate differential	0.5			0.8			(0.4		)
Changes in valuation allowance	1.7			13.2			1.5
Domestic manufacturing deduction	(5.1		)	(4.0		)	(3.0		)
Noncontrolling interest in consolidated partnership	(6.6		)	(3.1		)	(1.9		)
Nondeductible separation costs	—			1.5			2.4
Nondeductible restructuring costs	—			2.2			—
Federal and state tax credits	(0.7		)	(0.6		)	(0.3		)
Deferred rate change	(0.4		)	(0.6		)	—
U.S. Tax Reform	(24.5		)	—			—
Other	1.1			(0.1		)	1.2
Provision (benefit) for income taxes	$	29.6		$	42.6		$	52.2
Effective tax rate	16.9		%	49.0		%	38.2		%

Our effective tax rate was 16.9 percent and 49.0 percent for the years ended December 31, 2017 and 2016, respectively. The decrease in our effective tax rate is mainly due to U.S. Tax Reform, which was enacted in December 2017. Our U.S. net deferred tax liabilities as of December 31, 2017 were remeasured from 35.0 percent to 21.0 percent, resulting in $24.5 million of provisional deferred income tax benefit and a reduction in our effective tax rate of 14.0 percent. The remaining difference in our effective tax rate for the years ended December 31, 2017 and 2016, respectively, is due to non-deductible transaction costs associated with the Separation in 2016, acquisition-related charges, restructuring and other (income charges) and the unfavorable results of legal entities with full valuation allowances. Excluding the impact of U.S. Tax Reform, acquisition-related charges, restructuring and other (income charges), separation costs and losses from legal entities with full valuation allowances the change in the effective tax rate period over period was primarily due to a shift in earnings mix as it relates to domestic versus foreign income earned.

The significant components of deferred tax assets and liabilities are as follows:



	December 31,
In millions	2017			2016
Deferred tax assets:
Accrued restructuring	$	11.4		$	12.6
Employee benefits	8.0			12.3
Intangibles	3.0			5.8
Investment in partnership	1.8			1.4
Net operating losses	9.0			5.4
Start-up costs	0.8			1.0
Inventory	1.2			—
Other	5.0			2.3
Total deferred tax assets	$	40.2		$	40.8
Valuation allowance	(20.4		)	(18.8		)
Total deferred tax assets, net of valuation allowance	$	19.8		$	22.0
Deferred tax liabilities:
Fixed assets	$	57.1		$	86.9
Inventory	—			1.0
Other	0.6			0.5
Total deferred tax liabilities	$	57.7		$	88.4
Net deferred tax asset (liability)	$	(37.9	)	$	(66.4	)

On December 22, 2017, U.S. Tax Reform was signed into law making significant changes to the U.S. Internal Revenue Code ("IRC"). Changes include, but are not limited to, a corporate tax rate decrease from 35.0 percent to 21.0 percent effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

We have calculated our best estimate of the impact of U.S. Tax Reform in our year end income tax provision in accordance with our understanding of the changes to the IRC and guidance available as of the date of this filing. We recorded a provisional $24.5 million income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. No additional expense was recorded in relation to the one-time transition tax on the mandatory deemed repatriation of foreign earnings.

On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of U.S. Tax Reform. In accordance with SAB 118, we have determined that the $24.5 million of the provisional deferred tax expense recorded in connection with the re-measurement of certain deferred tax assets and liabilities and zero current tax expense recorded in connection with any other provisions of U.S. Tax Reform were reasonable estimates at December 31, 2017. Additional work may be necessary as the U.S. Treasury Department, the IRS, or other standard setting bodies interpret or issue new guidance on how the provisions of U.S. Tax Reform should be applied that may be different from our interpretation as of the date of this filing. Any subsequent adjustment to these amounts will be recorded to current tax expense in the period when the analysis is complete.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the U.S. Tax Reform. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. Effective the first quarter of 2018, we will elect to treat any potential GILTI inclusions as a period cost as we are not projecting any material impact from GILTI inclusions and any deferred taxes related to any inclusion would be immaterial.

We have deferred tax assets, including net operating loss carryforwards, which are available to offset future taxable income. A valuation allowance has been provided where management has determined that it is more likely than not that the deferred tax assets will not be realized.

At December 31, 2017, foreign net operating loss carryforwards totaled $27.7 million. Of this total, $6.0 million will expire in 3 to 10 years and $21.7 million has no expiration date.

At December 31, 2017 and 2016, no deferred income taxes have been provided for our share of undistributed net earnings of foreign operations due to management’s intent to reinvest such amounts indefinitely. The determination of the amount of taxes that may be due if earnings are remitted is not practicable because such liability, if any, is dependent on circumstances that exist if and when remittance occurs. The circumstances that would affect the calculations include the source location and amount of the distribution, the underlying tax rate already paid on the earnings, foreign withholding taxes, the opportunity to use foreign tax credits, and the potential impact of U.S. Tax Reform. Positive undistributed earnings considered to be indefinitely reinvested totaled less than $1.0 million at December 31, 2017.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



	December 31,
In millions	2017			2016			2015

Balance at beginning of year	$	0.6		$	0.7		$	0.8
Additions for tax positions related to current year	—			—			0.1
Additions for tax positions related to prior years	0.1			0.1			0.1
Reductions for tax positions related to prior years	—			(0.2		)	(0.2		)
Reduction from lapse of statute of limitation	(0.4		)	—			(0.1		)
Balance at end of year	$	0.3		$	0.6		$	0.7

As of December 31, 2017, 2016 and 2015, $0.5 million, $1.0 million, and $1.2 million, respectively, of unrecognized tax benefit, including penalties and interest, would, if recognized, impact our effective tax rate. We recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense.

As a result of lapse in statute of limitations, management anticipates a decrease in the accrual for unrecognized tax benefit of $0.4 million in the next twelve months.

We operate in multiple jurisdictions around the world and as such are subject, at times, to tax audits in these jurisdictions. Under the TMA with WestRock, we are not responsible for U.S. federal, state and local income tax examinations prior to the Separation.