Income Taxes

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



	As Restated
	2019			2018			2017
Income (loss) before income taxes
Domestic	$	24,835		$	30,835		$	34,136
Foreign	(658		)	(350		)	2,940
	$	24,177		$	30,485		$	37,076
Income tax provision (benefit)
Current income tax provision (benefit):
Federal	$	2,966		$	(323	)	$	12,647
State	1,106			356			1,396
Foreign	3,525			1,919			1,449
Total current	7,597			1,952			15,492
Deferred income tax provision (benefit):
Federal	856			5,592			3,417
State	1,676			447			(96		)
Foreign	(1,045		)	(565		)	154
Total deferred	1,487			5,474			3,475
	$	9,084		$	7,426		$	18,967

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:



	As Restated
	2019					2018					2017
	$			%		$			%		$			%
Income before income taxes	$	24,177				$	30,485				$	37,076
Statutory taxes at 21.0% (35.0% in 2017)	$	5,077		21.0	%	$	6,402		21.0	%	$	12,976		35.0	%
State and local income taxes	1,031			4.3	%	729			2.4	%	824			2.2	%
Valuation allowances	2,190			9.1	%	42			0.1	%	344			0.9	%
Other non-deductible expenses	253			1.0	%	429			1.4	%	—			—	%
Credits	(1,195		)	(4.9	)%	(348		)	(1.1	)%	(458		)	(1.2	)%
Provisional effect of the Tax Cuts and Jobs Act (the "Tax Act")	—			—	%	—			—	%	4,654			12.6	%
Non-deductible spin-related costs	—			—	%	—			—	%	540			1.5	%
Unrecognized tax benefits	2,719			11.2	%	1,427			4.7	%	(12		)	—	%
Other, net	(991		)	(4.1	)%	(1,255		)	(4.1	)%	99			0.3	%
Income tax provision	$	9,084		37.6	%	$	7,426		24.4	%	$	18,967		51.2	%

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:



	As Restated
	December 31
	2019			2018
Deferred tax assets
Tax carryforwards	$	2,867		$	1,456
Inventory	316			—
Accrued expenses and reserves	5,896			5,505
Other employee benefits	1,500			2,349
Other	1,412			996
Total deferred tax assets	11,991			10,306
Less: Valuation allowances	(1,069		)	(1,162		)
	10,922			9,144
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	$	6,248		$	5,794

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:



	As Restated
	December 31, 2019
	Net deferred tax asset		Valuation allowance		Carryforwards expire during:
Non-U.S. net operating loss	$	2,867	$	987	2020 - Indefinite
Total	$	2,867	$	987



	As Restated
	December 31, 2018
	Net deferred tax asset		Valuation allowance		Carryforwards expire during:
Non-U.S. net operating loss	$	1,456	$	917	2020 - Indefinite
Total	$	1,456	$	917

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 $13.2 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 Company recognizes any tax impacts of global intangible low-taxed income (GILTI) as period costs similar to other special deductions, and not as deferred taxes for basis differences.

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 $3.0 million, $1.4 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.



	As Restated
	2019		2018			2017
Balance at January 1	$	1,576	$	881		$	671
Additions based on tax positions related to prior years	97		91			—
Additions based on tax positions related to the current year	2,593		1,110			210
Reductions due to settlements with taxing authorities	—		(506		)	—
Balance at December 31	$	4,266	$	1,576		$	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.