Income Taxes	3 Months Ended
Mar. 31, 2019
Income Taxes
Income Taxes	8. Income Taxes Cactus Inc. is a corporation and is subject to U.S. federal as well as state income tax related to its ownership percentage in Cactus LLC. Cactus LLC is a limited liability company treated as a partnership for U.S. federal income tax purposes and files a U.S. Return of Partnership Income, which includes both our U.S. and foreign operations. Consequently, the members of Cactus LLC are taxed individually on their share of earnings for U.S. federal and state income tax purposes. Additionally, our operations in both Australia and China are subject to local country income taxes. For the three months ended March 31, 2019, the Company recognized a tax benefit of $1.0 million (-2.0% effective tax rate), which includes an $8.2 million release of our valuation allowance as discussed below. This is compared to an income tax expense of $1.7 million (5.9% effective tax rate) for the three months ended March 31, 2018. In addition to the partial release of our valuation allowance, the Company’s effective tax rate is lower than the statutory federal rate of 21% primarily due to the fact that Cactus Inc. is only subject to federal and state income tax on its share of income of Cactus LLC. Income relating to non-controlling interest is not subject to U.S. federal or state tax. We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more-likely-than-not the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions meeting the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company does not have any uncertain tax positions as of March 31, 2019. We recognize deferred tax assets to the extent we believe these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. Based upon our cumulative earnings history and forecasted future sources of taxable income, we believe that we will be able to realize the majority of our U.S. deferred tax assets in the future. We do not expect to realize the portion of our deferred tax asset for our investment in Cactus LLC that may only be realizable through the sale or liquidation of the investment and our ability to generate sufficient capital gains. However, as a result of the March 2019 Secondary Offering, we released $8.2 million of our valuation allowance and recorded a tax benefit of $8.2 million related to the realizable portion of the deferred tax asset. As of March 31, 2019, we have a valuation allowance of $19.4 million against this portion of the deferred tax asset. We have also recorded a valuation allowance of $1.8 million against our U.S. foreign tax credits. The foreign net operating losses have an indefinite carryforward period. We have recorded a full valuation allowance of $0.6 million against the deferred tax assets associated with the foreign net operating loss carryforwards and other items due to the uncertainty of realization.

8. Income Taxes

Cactus Inc. is a corporation and is subject to U.S. federal as well as state income tax related to its ownership percentage in Cactus LLC.

Cactus LLC is a limited liability company treated as a partnership for U.S. federal income tax purposes and files a U.S. Return of Partnership Income, which includes both our U.S. and foreign operations. Consequently, the members of Cactus LLC are taxed individually on their share of earnings for U.S. federal and state income tax purposes. Additionally, our operations in both Australia and China are subject to local country income taxes.

For the three months ended March 31, 2019, the Company recognized a tax benefit of $1.0 million (-2.0% effective tax rate), which includes an $8.2 million release of our valuation allowance as discussed below. This is compared to an income tax expense of $1.7 million (5.9% effective tax rate) for the three months ended March 31, 2018. In addition to the partial release of our valuation allowance, the Company’s effective tax rate is lower than the statutory federal rate of 21% primarily due to the fact that Cactus Inc. is only subject to federal and state income tax on its share of income of Cactus LLC. Income relating to non-controlling interest is not subject to U.S. federal or state tax.

We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more-likely-than-not the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions meeting the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company does not have any uncertain tax positions as of March 31, 2019.

We recognize deferred tax assets to the extent we believe these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations.

Based upon our cumulative earnings history and forecasted future sources of taxable income, we believe that we will be able to realize the majority of our U.S. deferred tax assets in the future. We do not expect to realize the portion of our deferred tax asset for our investment in Cactus LLC that may only be realizable through the sale or liquidation of the investment and our ability to generate sufficient capital gains. However, as a result of the March 2019 Secondary Offering, we released $8.2 million of our valuation allowance and recorded a tax benefit of $8.2 million related to the realizable portion of the deferred tax asset. As of March 31, 2019, we have a valuation allowance of $19.4 million against this portion of the deferred tax asset. We have also recorded a valuation allowance of $1.8 million against our U.S. foreign tax credits. The foreign net operating losses have an indefinite carryforward period. We have recorded a full valuation allowance of $0.6 million against the deferred tax assets associated with the foreign net operating loss carryforwards and other items due to the uncertainty of realization.