Income Tax

12 Months Ended

Dec. 31, 2019

Note 14: Income Tax

The provision for income tax expense (benefit), including the amount of domestic and foreign loss before taxes, is as follows:



(in $000s)	2019			2018			2017
Components of loss before tax:
Domestic	$	(30,046	)	$	(12,454	)	$	(29,211	)
Foreign	(2,992		)	(1,367		)	(1,377		)
Total loss before tax	(33,038		)	(13,821		)	(30,588		)

Current tax expense:
Federal	—			—			—
Foreign	483			514			766
State	392			95			98
Total current tax expense	875			609			864

Deferred tax expense (benefit):
Federal	852			852			(4,843		)
Foreign	—			—			—
State	244			244			486
Total deferred tax expense	1,096			1,096			(4,357		)

Valuation allowance	(7,957		)	—			—

Total tax expense (benefit)	$	(5,986	)	$	1,705		$	(3,493	)

We are subject to taxation in all jurisdictions in which we operate within the United States, Canada, and Mexico. Total income tax was a benefit of $6.0 million, an expense of $1.7 million and a benefit of $3.5 million for the years ended December 31, 2019, 2018 and 2017. The provision for income taxes in 2019 was a benefit, as compared to tax expense in 2018, which is the result a reduction to our valuation allowance recorded against our deferred tax assets. Our acquisition of Truck Utilities provides us with additional future taxable income related to rental equipment depreciation that will allow us to utilize a portion of our federal and state income tax loss carryforwards (“NOLs”).

Due to our valuation allowance on our net operating loss and interest deduction limitation carryforwards, we are generally unable to recognize a deferred tax benefit when we report pretax losses because we have determined the realization of tax benefits for the carryforwards to be uncertain. Our income tax expense or benefit reflects changes in our deferred tax liabilities associated with our non-tax deductible tradename intangible asset and goodwill, as well as, foreign taxes incurred in Canada and Mexico.

Substantially all of our income before income taxes for all periods presented is U.S. sourced. The foreign income tax amounts above relate to withholding taxes for revenues earned on our rental equipment held in Canada attributable to our U.S. operations.

A reconciliation between the federal statutory income tax rate and our actual effective income tax rate is as follows:



	2019		2018		2017
Expected federal income statutory tax rate	21.0	%	21.0	%	35.0	%
Tax effect of differences:
Permanent items
Foreign operations	(1.2	)%	(3.0	)%	(1.6	)%
Share-based payments	(0.1	)%	(1.8	)%	(1.3	)%
Effect of state income taxes, net of federal income tax benefit	5.0	%	(0.8	)%	0.9	%
Impact of TCJA	—	%	—	%	(37.6	)%
Change in valuation allowance	(8.4	)%	(27.4	)%	13.6	%
Other	1.8	%	(0.7	)%	2.4	%
Effective income tax rate	18.1	%	(12.7	)%	11.4	%

The components of the deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:



(in $000s)	2019			2018
Deferred tax assets
Accounts receivable	$	1,486		$	2,105
Inventory	1,228			731
Transaction and debt costs	1,231			2,661
Compensation and benefits	459			46
Net operating loss carryforwards	76,382			79,423
Section 163j interest disallowance	22,583			4,824
Foreign tax credits, accrued expenses, and other	315			1,092
Total deferred tax assets	103,684			90,882
Less: valuation allowance	(34,385		)	(31,610		)
Total deferred tax assets, net	69,299			59,272

Deferred tax liabilities
Rental equipment	(58,887		)	(50,164		)
Intangible assets	(22,700		)	(20,299		)
Total deferred tax liabilities	(81,587		)	(70,463		)
Net deferred tax liability	$	(12,288	)	$	(11,191	)

On December 22, 2017, H.R. 1, originally known as the Tax Cuts and Jobs Act (the TCJA) was enacted. The TCJA makes many significant changes to the Internal Revenue Code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) creating a 30% limitation on deductible interest expense; and (3) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. There were no material adjustments to the provisional amounts that were recorded in the year ended December 31, 2017.

Pursuant to the enactment of the TCJA, the Company remeasured existing deferred income tax balances as of December 31, 2017 to reflect the decrease in the corporate income tax rate from 35% to 21%, which resulted in a reduction to the net deferred income tax liability of approximately $5.2 million and a corresponding increase to deferred income tax benefit.

As of December 31, 2019 we had NOLs of approximately $285.3 million for U.S. Federal income tax purposes and $202.4 million for state income tax purposes. As of December 31, 2018, we had NOLs of approximately $312.5 million for U.S. Federal income tax purposes and $193.8 million for state income tax purposes. The NOLs expire at various dates commencing during 2027 through 2037 for U.S. Federal income tax purposes and 2019 through 2039 for state income tax purposes. As of December 31, 2019, we had approximately $6.5 million that expire between 2019 and 2022.

We record a valuation allowance against deferred tax assets when we determine that it is more likely than not that all or a portion of a deferred tax asset will not be realized. We have recorded a valuation allowance of $34.4 million, $31.6 million, and $28.4 million as of December 31, 2019, 2018, and 2017, respectively.

The following presents changes in the valuation allowance for the years ended December 31:



(in $000s)	2019			2018			2017
Valuation allowance - beginning of year	$	(31,610	)	$	(28,384	)	$	(32,528	)
Charged to benefit (expense)	(2,775		)	(3,226		)	4,144
Valuation allowance - end of year	$	(34,385	)	$	(31,610	)	$	(28,384	)