Income Taxes	9 Months Ended
Sep. 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 September 30, 2019 and 2018, we recorded income tax expense of $12.2 million (25.4% effective tax rate) and $8.2 million (15.8% effective tax rate), respectively. Income tax expense for the three months ended September 30, 2019 included $2.2 million associated with a reduction of previously anticipated benefits related to Texas franchise tax and $1.9 million related to the write-off of foreign tax credits. For the nine months ended September 30, 2019, we recorded income tax expense of $22.0 million (15.0% effective tax rate), which included a cumulative $4.2 million release of our valuation allowance, as discussed below, largely offset by the adjustments noted above. This is compared to income tax expense of $14.6 million (11.5% effective tax rate) for the nine months ended September 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 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. As of September 30, 2019, we have a valuation allowance of $23.2 million against this deferred tax asset. For the nine months ended September 30, 2019, as a result of the March 2019 Secondary Offering and redemptions of CW Units, we 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 September 30, 2019 and 2018, we recorded income tax expense of $12.2 million (25.4% effective tax rate) and $8.2 million (15.8% effective tax rate), respectively. Income tax expense for the three months ended September 30, 2019 included $2.2 million associated with a reduction of previously anticipated benefits related to Texas franchise tax and $1.9 million related to the write-off of foreign tax credits.

For the nine months ended September 30, 2019, we recorded income tax expense of $22.0 million (15.0% effective tax rate), which included a cumulative $4.2 million release of our valuation allowance, as discussed below, largely offset by the adjustments noted above. This is compared to income tax expense of $14.6 million (11.5% effective tax rate) for the nine months ended September 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 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. As of September 30, 2019, we have a valuation allowance of $23.2 million against this deferred tax asset. For the nine months ended September 30, 2019, as a result of the March 2019 Secondary Offering and redemptions of CW Units, we 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.