INCOME TAXES

Components of the provision for income taxes are as follows:



	Years Ended December 31,
(in millions)	2017			2016		2015
Current provision:
Federal	$	29.5		$	33.6	$	33.3
State and local	3.0			3.3		3.2
	32.5			36.9		36.5
Deferred (benefit) provision:
Federal	(53.0		)	12.7		6.0
State and local	0.8			1.1		2.1
Foreign	(0.2		)	—		—
	(52.4		)	13.8		8.1
	$	(19.9	)	$	50.7	$	44.6

Income from operations before provision for income taxes were as follows:



	Years Ended December 31,
(in millions)	2017		2016		2015
Domestic	$	102.2	$	146.4	$	114.1
Foreign	0.3		1.0		1.3
	$	102.5	$	147.4	$	115.4

Our income tax (benefit) expense is different from the amount computed by applying the federal statutory income tax rate to income before taxes as follows:



	Years Ended December 31,
(in millions)	2017			2016			2015
Federal statutory tax on earnings before income taxes	$	35.9		$	51.6		$	40.4
State income taxes, net of federal income tax benefit	2.5			4.0			2.0
Non-deductible officer's compensation	4.7			2.3			2.0
Change in enacted tax rates	(57.7		)	0.1			0.7
Windfall deduction from equity compensation	(5.2		)	(4.9		)	—
Other	(0.1		)	(2.4		)	(0.5		)
	$	(19.9	)	$	50.7		$	44.6

On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law. The Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a one-time tax on accumulated earnings of foreign subsidiaries as of 2017, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property. As a result of the Tax Act, the Company’s deferred tax assets and liabilities have been re-measured at December 22, 2017, using the maximum U.S. federal tax rate of 21%. The impact of this balance sheet re-measurement was $56.9 million of future tax benefits recognized by the Company in the fourth quarter of 2017. In addition to the future tax benefit recognized by the Company due to the reduced federal tax rate, the Company recognized $0.8 million of tax benefits in relation to the mandatory deemed repatriation of its foreign earnings and profits pursuant to the Tax Act in combination with the reversal of deferred tax liabilities that had been maintained on foreign earnings.

In accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), the Company has made estimates for certain provisions of the Tax Act which are considered to be incomplete. The accounting for these estimates will be finalized during a one-year measurement period following the enactment of the Tax Act. The following is a list of sections of the Tax Act for which we have made an estimate:

•

We have estimated the impact of non-deductible officer’s compensation and recognized provisional tax expense of $4.7 million. This estimate considers certain performance compensation plans to be tax-deductible due to their establishment before enactment of the Tax Act. We are continuing our consideration of the new rules and any additional information that needs to be acquired for this section of the Tax Act.


•	We have made a reasonable estimate of tax depreciation, providing a $19.7 million provisional tax benefit which includes the accelerated cost recovery allowance granted by the Tax Act effective September 27, 2017. However, our inventory of capital expenditures requires further analysis to finalize the deductibility allowed by the Tax Act.


•	We have made a reasonable estimate of the tax consequences of mandatory deemed repatriation required by the Tax Act and recorded provisional tax expense of $0.9 million. We are continuing to evaluate certain applications related to this section of the Tax Act and the application of ASC 740.


•	We have re-measured our deferred taxes as of December 22, 2017 at a reduced corporate tax rate of 21% and recognized a provisional future tax benefit of $56.9 million. While we are able to make a reasonable estimate of this impact, it may be affected by other elements of the Tax Act including, but not limited to capital expensing and non-deductible officer’s compensation.

Components of our deferred tax assets and liabilities are as follows:



	As of December 31,
(in millions)	2017			2016
Deferred tax assets:
Deferred compensation plans	$	6.5		$	10.7
Deferred income	4.7			4.3
Allowance for uncollectible receivables	0.8			1.2
Deferred liabilities	2.1			3.0
Net operating losses and credit carryforward	5.1			8.1
Deferred tax assets	19.2			27.3
Valuation allowance	(0.2		)	(0.4		)
Net deferred tax asset	19.0			26.9
Deferred tax liabilities:
Intangible assets in excess of tax basis	29.2			41.2
Property and equipment in excess of tax basis	22.4			34.8
Equity investments in excess of tax basis	6.8			11.1
Other	1.2			3.0
Deferred tax liabilities	59.6			90.1
Net deferred tax liability	$	(40.6	)	$	(63.2	)

As of December 31, 2017, we have federal net operating loss carryforwards of $9.6 million which were acquired in conjunction with the acquisition of Youbet.com. The utilization of these losses, which expire between 2023 and 2030, is limited on an annual basis pursuant to Internal Revenue Code ("IRC") § 382. We believe that we will be able to fully utilize all of these losses. In addition, we have $2.1 million of state net operating losses, $0.5 million of which was acquired in conjunction with the acquisitions of Youbet.com. These losses, which expire between 2028 and 2030, may be subject to annual limitations similar to IRC § 382. We have recorded a valuation allowance of $0.2 million against the state net operating losses due to the fact that it is unlikely that we will generate income in certain states which is necessary to utilize the assets.

The Internal Revenue Service has completed audits through 2012. Tax years 2014 and after are open to examination. State and local tax years open for examination vary by jurisdiction.

As of December 31, 2017, we had approximately $2.9 million of total gross unrecognized tax benefits. If the total gross unrecognized tax benefits were recognized, there would be a $2.8 million effect to the annual effective tax rate. We anticipate a decrease in our unrecognized tax positions of approximately $0.2 million during the next twelve months primarily due to the expiration of statutes of limitation.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(in millions)	2017			2016			2015
Balance as of January 1	$	2.3		$	1.8		$	1.5
Additions for tax positions related to the current year	0.5			0.5			0.3
Additions for tax positions of prior years	0.3			0.1			0.2
Reductions for tax positions of prior years	(0.2		)	(0.1		)	(0.2		)
Balance as of December 31	$	2.9		$	2.3		$	1.8