Income Taxes

The components of income before income taxes and the income tax provision for the years ended December 31 are as follows:



	2019		2018		2017
Income before income taxes
Domestic	$	25,331	$	30,670	$	34,301
Foreign	9,062		4,291		4,747
	$	34,393	$	34,961	$	39,048
Income tax provision
Current income tax provision:
Federal	$	3,669	$	775	$	12,139
State	1,026		460		1,306
Foreign	1,372		1,396		1,366
Total current	6,067		2,631		14,811
Deferred income tax provision (benefit):
Federal	297		4,813		3,868
State	1,771		296		(17		)
Foreign	1,180		76		256
Total deferred	3,248		5,185		4,107
	$	9,315	$	7,816	$	18,918

The Company made federal income tax payments of $1.9 million, $8.3 million, and $9.9 million during 2019, 2018, and 2017, respectively, to the IRS and to NACCO as a member of the consolidated income tax return for periods prior to spin off. The Company made foreign and state income tax payments of $3.6 million, $2.6 million, and $1.9 million during 2019, 2018, and 2017, respectively. During the same periods, income tax refunds totaled $0.1 million in 2019 and $0.1 million in 2018. There were no tax refunds in 2017.

A reconciliation of the federal statutory and effective income tax rate for the years ended December 31 is as follows:



	2019					2018					2017
	$			%		$			%		$			%
Income before income taxes	$	34,393				$	34,961				$	39,048
Statutory taxes at 21.0% (35.0% in 2017)	$	7,223		21.0	%	$	7,342		21.0	%	$	13,667		35.0	%
State and local income taxes	1,063			3.1	%	561			1.6	%	843			2.2	%
Valuation allowances	2,146			6.2	%	233			0.7	%	369			0.9	%
Other non-deductible expenses	346			1.0	%	429			1.2	%	44			0.1	%
Credits	(1,195		)	(3.5	)%	(348		)	(1.0	)%	(458		)	(1.2	)%
Provisional effect of the Tax Cuts and Jobs Act (the "Tax Act")	—			—	%	—			—	%	4,654			11.9	%
Non-deductible spin-related costs	—			—	%	—			—	%	540			1.4	%
Other, net	(268		)	(0.8	)%	(401		)	(1.1	)%	(741		)	(1.9	)%
Income tax provision	$	9,315		27.1	%	$	7,816		22.4	%	$	18,918		48.4	%

The valuation allowances in 2019 includes $2.0 million of deferred tax expense related to a change in judgment regarding the valuation allowances recorded against certain deferred tax assets of KC.

A detailed summary of the total deferred tax assets and liabilities in the Company's Consolidated Balance Sheets resulting from differences in the book and tax basis of assets and liabilities follows:



	December 31
	2019			2018
Deferred tax assets
Tax carryforwards	$	1,519		$	990
Inventory	316			—
Accrued expenses and reserves	5,311			5,338
Other employee benefits	1,371			2,747
Other	1,167			1,088
Total deferred tax assets	9,684			10,163
Less: Valuation allowances	(1,157		)	(1,295		)
	8,527			8,868
Deferred tax liabilities
Inventory	—			37
Accrued pension benefits	2,623			1,854
Depreciation and amortization	2,051			1,459
Total deferred tax liabilities	4,674			3,350
Net deferred tax asset	$	3,853		$	5,518

As of December 31, 2019 and 2018, respectively HBB maintained valuation allowances with respect to certain deferred tax assets relating primarily to operating losses in certain non-U.S. jurisdictions that HBB believes are not likely to be realized.

The following table summarizes the tax carryforwards and associated carryforward periods and related valuation allowances where the Company has determined that realization is uncertain:



	December 31, 2019
	Net deferred tax asset		Valuation allowance		Carryforwards expire during:
Alternative minimum tax credit	$	496	$	—	(1)
Non-U.S. net operating loss	1,023		1,023		2020 - Indefinite
Total	$	1,519	$	1,023


(1)	The Tax Act repealed the corporate alternative minimum tax for tax years beginning after December 31, 2017. These credits are fully utilized in 2019 based on estimated income taxes.



	December 31, 2018
	Net deferred tax asset		Valuation allowance		Carryforwards expire during:
Non-U.S. net operating loss	$	990	$	990	2020 - Indefinite
Total	$	990	$	990

The Company has valuation allowances for certain foreign deferred tax assets. Based upon the review of historical earnings and the relevant expiration of carryforwards, the Company believes the valuation allowances are appropriate and does not expect to release valuation allowances within the next twelve months that would have a significant effect on the Company’s financial position or results of operations.

As of December 31, 2019, the cumulative unremitted earnings of the Company's foreign subsidiaries are approximately $31.4 million. The Company has recorded the tax impact for the unremitted earnings as allowed under the Tax Act, a portion of which is classified in other long-term liabilities as the Company has elected to make payments over eight years. The Company continues to conclude all material entities’ foreign earnings will be indefinitely reinvested in its foreign operations and will remain offshore in order to meet the capital and business needs outside of the U.S. As a result, the Company does not provide a deferred tax liability with respect to the cumulative unremitted earnings. It is not practicable to determine the deferred tax liability associated with these undistributed earnings due to the availability of foreign tax credits and the complexity of the rules governing the utilization of such credits under the Tax Act. The Company made an accounting policy election to account for the global intangible low-tax income as a current period expense when incurred.

The following is a reconciliation of the Company's total gross unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the financial statements for the years ended December 31, 2019, 2018, and 2017. Approximately $0.4 million, $0.3 million, and $0.6 million of these gross amounts as of December 31, 2019, 2018, and 2017, respectively, relate to permanent items that, if recognized, would impact the effective income tax rate. This amount differs from the gross unrecognized tax benefits presented in the table below due to the decrease in U.S. federal income taxes which would occur upon the recognition of the state tax benefits included herein.



	2019		2018			2017
Balance at January 1	$	465	$	881		$	671
Additions based on tax positions related to prior years	98		90			—
Additions based on tax positions related to the current year	—		—			210
Reductions due to settlements with taxing authorities	—		(506		)	—
Balance at December 31	$	563	$	465		$	881

The Company records interest and penalties on uncertain tax positions as a component of the income tax provision. The Company recorded immaterial amounts of interest and penalties as of December 31, 2019 and 2018, respectively. The Company expects the amount of unrecognized tax benefits will change within the next 12 months; however, the change in unrecognized tax benefits, which is reasonably possible within the next 12 months, is not expected to have a significant effect on the Company's financial position, results of operations or cash flows.

In general, the Company operates in taxing jurisdictions that provide a statute of limitations period ranging from three to five years for the taxing authorities to review the applicable tax filings. The examination of NACCO's 2013-2016 U.S. federal tax returns is ongoing. In addition, the Company does not have any material taxing jurisdictions in which the statute of limitations has been extended beyond the applicable time frame allowed by law.