Income Taxes	6 Months Ended
Jun. 30, 2019
Income Taxes
Income Taxes	9. Income Taxes Cactus Inc. is a corporation and is subject to U.S. federal and state income taxes related to its ownership percentage in Cactus LLC. Cactus LLC is a limited liability company treated as a partnership for U.S. federal and state 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 June 30, 2019 and 2018, we recorded income tax expense of $10.8 million (20.9% effective tax rate) and $4.7 million (10.2% effective tax rate), respectively. Tax expense for the three months ended June 30, 2019 includes $4.0 million related to the establishment of additional valuation allowance as discussed below. For the six months ended June 30, 2019, we recorded tax expense of $9.8 million (9.9% effective tax rate), which includes a cumulative $4.2 million release of our valuation allowance as discussed below. This is compared to income tax expense of $6.3 million (8.5% effective tax rate) for the six months ended June 30, 2018. In addition to the partial release of our valuation allowance, our 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 income 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. We do not have any uncertain tax positions as of June 30, 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. During the second quarter of 2019, we revised our estimation of the valuation allowance against this deferred tax asset and recorded tax expense of $4.0 million to establish additional valuation allowance. As of June 30, 2019, we have a valuation allowance of $23.4 million against this deferred tax asset. For the six months ended June 30, 2019, as a result of the March 2019 Secondary Offering and redemptions of CW Units, we have released $4.2 million of our valuation allowance and recorded a tax benefit of $4.2 million related to the realizable portion of the deferred tax asset.

9. Income Taxes

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

Cactus LLC is a limited liability company treated as a partnership for U.S. federal and state 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 June 30, 2019 and 2018, we recorded income tax expense of $10.8 million (20.9% effective tax rate) and $4.7 million (10.2% effective tax rate), respectively. Tax expense for the three months ended June 30, 2019 includes $4.0 million related to the establishment of additional valuation allowance as discussed below. For the six months ended June 30, 2019, we recorded tax expense of $9.8 million (9.9% effective tax rate), which includes a cumulative $4.2 million release of our valuation allowance as discussed below. This is compared to income tax expense of $6.3 million (8.5% effective tax rate) for the six months ended June 30, 2018. In addition to the partial release of our valuation allowance, our 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 income 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. We do not have any uncertain tax positions as of June 30, 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. During the second quarter of 2019, we revised our estimation of the valuation allowance against this deferred tax asset and recorded tax expense of $4.0 million to establish additional valuation allowance. As of June 30, 2019, we have a valuation allowance of $23.4 million against this deferred tax asset. For the six months ended June 30, 2019, as a result of the March 2019 Secondary Offering and redemptions of CW Units, we have released $4.2 million of our valuation allowance and recorded a tax benefit of $4.2 million related to the realizable portion of the deferred tax asset.