Income Taxes

12 Months Ended

Dec. 31, 2018

INCOME TAXES

The provision for income taxes is based on the earnings reported in the accompanying consolidated financial statements. The Company recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred income tax liabilities and assets are determined based on the cumulative temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates expected to be applied to taxable income in years which those temporary differences are expected to be recovered or settled. Deferred income tax expense is measured by the net change in deferred income tax assets and liabilities during the year.

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Act”), a tax reform bill which, among other items, reduced the current federal income tax rate to 21% from 35%. The rate reduction was effective as of January 1, 2018, and is permanent.

The Act caused the Company’s deferred income taxes to be revalued during calendar year 2017, resulting in a provisional reduction to income tax expense of $38.4 million in that period. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as of December 31, 2017, the Company recognized the provisional effects of the enactment of the Act for which measurement could be reasonably estimated. Adjustments to these provisional amounts that are identified within the subsequent measurement period of up to one year from the enactment date are included as an adjustment to tax expense from continuing operations in the period the amounts are determined. The Company has completed its accounting for the income tax effects of the Act and no material adjustments were recorded during calendar year 2018. The one time transition tax calculation, a separate provision of the Act, was also competed and was not material.

The foreign components of income before the provision for income taxes were not material for the year ended December 31, 2018, 2017 and 2016. The components of the provision for income taxes are as follows:



	2018			2017			2016
Currently payable:
Federal	$	83,010,387		$	133,166,194		$	136,124,497
State	3,743,781			3,984,000			3,805,000
Foreign	1,776,837			2,440,000			540,000
Total	88,531,005			139,590,194			140,469,497
Deferred income tax (benefit) expense:
Primarily federal	(4,367,155		)	(14,585,412		)	22,500,000
Provision for income taxes	$	84,163,850		$	125,004,782		$	162,969,497

The effective income tax rates are different from the statutory federal income tax rates for the following reasons:



	2018		2017		2016
Statutory federal income tax rate	21.0	%	35.0	%	35.0	%
State income taxes, net of federal income tax benefit	0.6		0.5		0.5
Domestic production exclusion	—		(2.8	)	(2.7	)
Research tax credit	(0.8	)	(0.8	)	(0.8	)
Increase (reduction) in reserve for uncertain tax provisions	0.1		0.1		(0.2	)
Change in tax rate on deferred taxes	0.5		(7.2	)	—
Foreign tax credit	(0.1	)	(0.8	)	—
Foreign derived intangible income deduction	(4.6	)	—		—
Stock compensation	(1.0	)	(1.0	)	—
Other	0.4		0.5		0.1
Effective income tax rate	16.1	%	23.5	%	31.9	%

The tax effect of temporary differences which give rise to deferred income tax assets and liabilities at December 31, 2018 and 2017, are as follows:



	December 31,
	2018			2017
Assets:
Accruals not currently deductible	$	5,111,242		$	4,546,767
Stock based compensation	9,586,372			8,594,640
Other	356,039			3,679,680
Total deferred income tax assets	$	15,053,653		$	16,821,087
Liabilities:
Excess tax over book depreciation	(39,835,025		)	(46,123,681		)
Goodwill	(23,341,226		)	(18,972,334		)
Intangible assets	(5,089,042		)	(4,172,726		)
Other	(1,309,849		)	(6,440,990		)
Total deferred income tax liability	$	(69,575,142	)	$	(75,709,731	)
Net deferred income taxes	$	(54,521,489	)	$	(58,888,644	)

Income taxes paid in cash were approximately $86.9 million, $126.0 million and $144.1 million in 2018, 2017 and 2016, respectively.

The Company follows the provisions of the Financial Accounting Standards Codification 740 (“ASC 740”), “Income Taxes.” A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2018			2017			2016
Beginning of year	$	4,435,000		$	3,408,000		$	5,375,000
Additions based on tax positions related to the current year	1,677,000			941,000			756,000
Additions for tax positions in prior years	283,000			289,000			487,000
Reductions for tax positions in prior years	(163,000		)	(63,000		)	(2,949,000		)
Reductions as a result of completed audit examinations	(1,554,000		)	—			—
Reductions as a result of a lapse of the applicable statute of limitations	—			(140,000		)	(261,000		)
End of year	$	4,678,000		$	4,435,000		$	3,408,000

If recognized, unrecognized tax benefits would affect the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits through the provision for income taxes. The Company has accrued approximately $315,000 and $433,000 for interest as of December 31, 2018 and 2017, respectively. Interest recorded during 2018, 2017 and 2016 was not considered significant.

The Company is also subject to periodic and routine audits in both domestic and foreign tax jurisdictions, and it is reasonably possible that the amounts of unrecognized tax benefits could change as a result of an audit.

Based on the current audits in process, the payment of taxes as a result of audit settlements, and the completion of tax examinations, the Company does not expect these to have a material impact on the Company’s financial position or results of operations.

For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2014.