Income Taxes

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Brigham Minerals periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets, including net operating losses. In making this determination, Brigham Minerals considers all available positive and negative evidence and makes certain assumptions. Brigham Minerals considers, among other things, its deferred tax liabilities, the overall business environment, its historical earnings and losses, current industry trends and its outlook for future years. Brigham Minerals did not record a valuation allowance at December 31, 2019 and 2018.

Brigham Minerals has evaluated all tax positions for which the statute of limitations remains open and believes that the material positions taken would more likely than not be sustained by examination. Therefore, at December 31, 2019, Brigham Minerals had not established any reserves for, nor recorded any unrecognized benefits related to, uncertain tax positions.

Brigham Resources, the Company’s predecessor, is a limited liability company that is not subject to U.S. federal income tax, but is subject to the Texas Margin Tax and state income taxes in Oklahoma, North Dakota, and Colorado. As part of the corporate reorganization, certain entities affiliated with Warburg Pincus contributed all of their respective interests in certain wholly owned “blocker” entities through which they held interests in Brigham Resources to Brigham Minerals in exchange for all of the outstanding shares of common stock of Brigham Minerals. On the date of the corporate reorganization, a corresponding “first day” tax charge of approximately $3.1 million was recorded to establish a net deferred tax liability for differences between the tax and book basis of the investment in Brigham Resources. The offset of the deferred tax liability was recorded to additional paid-in-capital.

Brigham Minerals is a corporation and is subject to U.S. federal income tax. In April 2019, Brigham Minerals completed the IPO of 16,675,000 shares of Class A common stock at a price to the public of $18.00 per share. The tax implications of the July 2018 restructuring, initial public IPO and the tax impact of the Company’s status as a taxable corporation subject to U.S. federal income tax have been reflected in the accompanying consolidated and combined financial statements. On IPO date, a corresponding tax benefit of approximately $13.7 million was recorded associated with the differences between the tax and book basis of the investment in Brigham Resources, LLC. The offset of the deferred tax asset was recorded to additional paid-in capital.

Brigham Minerals completed the December 2019 Offering of 12,650,000 shares of its Class A common stock, including 6,000,000 shares issued and sold by Brigham Minerals and an aggregate of 6,650,000 shares sold by certain shareholders of the Company, of which 5,496,813 represents shares issued upon redemption of an equivalent number of their Brigham LLC units, at a price to the public of $18.10 per share. After the December 2019 Offering and redemption, a corresponding tax benefit of approximately $9.5 million was recorded associated with the differences between the tax and book basis of the investment in Brigham Resources, LLC. The offset of the deferred tax asset was recorded to additional paid-in capital.

The effective combined U.S. federal and state income tax rate for the year ended December 31, 2019 was 11.0%. During the twelve months ended December 31, 2019, 2018 and 2017, the Company recognized income tax expense of $2.7 million, $0.3 million and $1.0 million, respectively. Total income tax expense for the twelve months ended December 31, 2019 and 2018 differed from amounts computed by applying the U.S. federal statutory tax rate of 21% due to the impact of the temporary equity, net income attributable to Predecessor, state taxes (net of the anticipated federal benefit), and percentage depletion in excess of basis.



	Years Ended December 31,
(In thousands)	2019		2018			2017
State Income Tax
Current (benefit)/expense	$	692	$	(23	)	$	713
Deferred (benefit)/expense	63		(138		)	295
Federal Income Tax
Current expense	1,322		114			—
Deferred expense	602		374			—
Totals:	$	2,679	$	327		$	1,008

Total current income taxes	$	2,014	$	91		$	713
Total deferred income taxes	665		236			295
Totals:	$	2,679	$	327		$	1,008

The following table reconciles the income tax provision with income tax expense at the federal statutory rate for the periods indicated:



	Years Ended December 31,
(In thousands)	2019			2018			2017
Income before income taxes	$	24,318		$	33,142		$	116,620
Less: income before income taxes attributable to predecessor	(5,118		)	(30,805		)	(116,620		)
Less: income before income taxes attributable to temporary equity	(9,858		)	—			—
Income before income taxes attributable to shareholders	$	9,342		$	2,337		$	—

Income tax at the federal statutory rate	$	1,962		$	491		$	—
State income taxes, net of federal benefit	717			(150		)	1,008
Percentage depletion in excess of basis	—			(14		)	—
Total income tax provision	$	2,679		$	327		$	1,008

Brigham Minerals had $18.8 million recorded as deferred tax asset as of December 31, 2019, and $3.7 million recorded as deferred tax liability at December 31, 2018. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities were are follows:



	Years Ended December 31,
(In thousands)	2019			2018
Deferred tax assets:
Investment in subsidiary	$	19,021		$	—
Total deferred tax assets:	$	19,021		$	—

Deferred tax liabilities:
Oil and gas properties	(198		)	(208		)
Investment in subsidiary	—			(3,476		)
Total deferred tax liabilities	$	(198	)	$	(3,684	)