INCOME TAXES

12 Months Ended

Dec. 31, 2019

The components of the provision for income taxes were as follows:



	Years Ended December 31,
(in thousands)	2019		2018		2017
Current taxes
Federal	$	9,022	$	15,262	$	38,400
State	2,033		5,217		5,587
	11,055		20,479		43,987
Deferred taxes
Federal	7,363		5,760		(5,437		)
State	1,632		120		311
	8,995		5,880		(5,126		)
Provision for income taxes	$	20,050	$	26,359	$	38,861

The effective rate varies from the statutory U.S. federal tax rate as follows:



	Years Ended December 31,
(in thousands)	2019			2018			2017
Income tax expense at statutory federal rate	$	15,789		$	20,537		$	35,388
State income taxes, net of federal effect	2,883			4,308			3,834
Nondeductible professional fees	1,255			1,776			—
Other permanent differences including lobbying expense	424			236			687
Share-based compensation	(261		)	(718		)	5,167
Deferred tax adjustment	—			—			(552		)
Deferred tax impact of TCJA	—			117			(6,523		)
Return to provision adjustments	(245		)	89			—
Change in uncertain tax positions	205			14			860
Total provision for income taxes	$	20,050		$	26,359		$	38,861
Effective income tax rate on continuing operations	26.7		%	27.0		%	38.4		%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred income taxes at December 31, 2019 and 2018 are as follows:



	Years Ended December 31,
(in thousands)	2019			2018
Deferred tax assets:
Accrued liabilities and other	$	3,233		$	1,818
Tax basis difference in property and equipment	9,148			6,190
Tax basis difference in share-based compensation	1,800			1,694
Federal tax net operating loss carryforwards	121			—
State tax net operating loss carryforwards	310			131
Valuation allowance	—			—
Total deferred tax assets, net	$	14,612		$	9,833

Deferred tax liabilities:
Tax basis difference in land	$	(2,865	)	$	(1,848	)
Tax basis difference in goodwill	(4,296		)	(3,673		)
Tax basis difference in amortizable assets	(21,241		)	(21,838		)
Total deferred tax liabilities	$	(28,402	)	$	(27,359	)
Net deferred tax liabilities	$	(13,790	)	$	(17,526	)

The Company will only recognize a deferred tax asset when, based on available evidence, realization is more likely than not. Accordingly, no valuation has been established as of December 31, 2019 and 2018, respectively.

During 2019, the Company acquired Dover Downs Entertainment, Inc. in a stock acquisition. Pursuant to ASC Topic 805, Business Combinations, the Company recognized an acquisition of $11.9 million of deferred tax assets. For the years ended December 31, 2019 and 2018 the net deferred tax liabilities decreased by $3.7 million and increased by $5.9 million, respectively. For the year ended December 31, 2019, an increase of $9.0 million was included in income from operations, a decrease of $11.9 million was acquired from the Dover Downs Entertainment, Inc., and a decrease of $0.9 million was included in other comprehensive loss. For the year ended December 31, 2018, an increase of $5.9 million was included in income from operations.

As of December 31, 2019, the Company has $0.6 million of federal net operating carryforwards and $2.6 million of Delaware net operating loss carryforwards, both with an unlimited carryforward period. There was no federal or Delaware net operating loss carryforward as of December 31, 2018. As of December 31, 2019 and December 31, 2018, the Company has $3.6 million and $3.8 million, respectively, of Colorado net operating loss carryforwards which expire at various dates through 2037. As of December 31, 2019, the Company anticipates sufficient taxable income to make utilization of these net operating losses more likely than not during the carryforward periods, and accordingly, no valuation allowance has been established.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “TCJA”). SAB 118 provides a measurement period that begins in the reporting period that includes the TCJA’s enactment date and ends when an entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC 740, however in no circumstance should the measurement period extend beyond one year from the enactment date. In accordance with SAB 118, a company must reflect in its financial statements the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. SAB 118 provides that to the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

In accordance with SAB 118, the Company has recorded a provisional estimated income tax benefit of $6.5 million for the year ended December 31, 2018 related to the remeasurement of the Company’s net deferred tax liability and other effects of the TCJA. As a result of the adoption of the TCJA, the Company remeasured the net deferred tax liability at the reduced federal corporate income tax rate. During the fourth quarter of 2018, the Company completed its analysis to determine the deferred tax effect of the TCJA and recorded immaterial adjustments as of December 22, 2018.

From time to time, the Company may be subject to audits covering a variety of tax matters by taxing authorities in any taxing jurisdiction where the Company conducts business. While the Company believes that the tax returns filed, and tax positions taken are supportable and accurate, some tax authorities may not agree with the positions taken. This can give rise to tax uncertainties which, upon audit, may not be resolved in the Company’s favor. As of December 31, 2018, the Company has recorded tax contingency accruals for uncertain tax positions of approximately $0.4 million, which would impact the effective tax rate, if recognized. There were no tax contingency accruals for uncertain tax positions recorded as of December 31, 2019. As of December 31, 2018, $0.4 million of unrecognized tax benefit has been classified as a current liability based on the anticipated cash settlement with the tax authorities within the next during 2019. There was no unrecognized tax benefit recorded as of December 31, 2019. A reconciliation of the beginning and ending balances of the gross liability for uncertain tax positions is as follows:



	Years Ended December 31,
(in thousands)	2019			2018			2017
Uncertain tax position liability at the beginning of the year	$	400		$	445		$	106
Increases related to tax positions taken during prior period	—			21			953
Decreases related to tax positions taken during prior periods	(400		)	—			—
Decreases related to settlements with taxing authorities	—			(66		)	(614		)
Uncertain tax position liability at the end of the year	$	—		$	400		$	445

The Company and its subsidiaries file tax returns in several jurisdictions. The Company remains subject to examination for U.S. federal income tax purposes for the years ended December 31, 2017 through 2019. The Company remains subject to examination for state tax purposes for the years ended December 31, 2012 through 2019 in Colorado, for the years ended December 31, 2016 through 2019 in Delaware, for the years ended December 31, 2015 through 2019 in Rhode Island and for the years ended December 31, 2016 through 2019 in Mississippi. The Company is currently under audit by the State of Colorado for tax years ended December 31, 2012 through 2015. Based on the current status of the Colorado audit, the Company believes no additional reserves are necessary.

The Company has a tax sharing agreement with its subsidiaries. Under the agreement, subsidiaries are required to satisfy their separate return liability and pay for benefits realized by virtue of filing a consolidated return. The Company and its subsidiaries made total cash tax payments during 2019 and 2018 of $16.5 million and $22.2 million, respectively, to federal and state taxing authorities. Effective July 10, 2014, the tax sharing agreement was amended to comply with the credit agreement in place related to the Company’s indebtedness. The amendment limits payments to any Unrestricted Subsidiaries, as defined in the credit agreement, to the actual payments of tax made by the unrestricted subsidiary directly or indirectly to the consolidated group. As of December 31, 2019, Mile High USA, Inc. and its subsidiaries are unrestricted subsidiaries.