INCOME TAXES

The operations conducted by the Company’s REIT entities are generally not subject to U.S. federal and state income taxation. Non-REIT qualifying operations are conducted by the Company’s taxable REIT subsidiaries. Prior to the June 27, 2014 spin-off of Rayonier Advanced Materials, the Company’s taxable REIT subsidiaries (“TRS”) operations included the Performance Fibers manufacturing business. As such, during 2014 and prior periods, the income tax benefit from continuing operations was significantly impacted by the TRS businesses. As of December 31, 2014, the primary businesses performed in Rayonier’s taxable REIT subsidiaries included log trading and certain real estate activities, such as the sale and entitlement of development HBU properties.

The Company was subject to U.S. federal corporate income tax on built-in gains (the excess of fair market value over tax basis for property held upon REIT election at January 1, 2004) on taxable sales of such property during calendar years 2004 through 2010. In 2011, the law provided a built-in gains tax holiday. In 2013, the law provided a built-in gains tax holiday for 2012 (retroactive) and 2013, which impacted the Company’s 2013 tax provision. The Company’s 2014 tax provision was not impacted by built-in-gains taxes.

Like-Kind Exchanges

Under current tax law, taxable income from the sale of REIT property and the required distribution of such gains to shareholders can be deferred and eliminated if sale proceeds from “relinquished” properties are reinvested in similar property consistent with the LKE requirements of the U.S. Internal Revenue Code.

Alternative Fuel Mixture Credit (“AFMC”) and Cellulosic Biofuel Producer Credit (“CBPC”)

The U.S. Internal Revenue Code allowed two credits for taxpayers that produced and used an alternative fuel in the operation of their business during calendar year 2009. The AFMC is a $0.50 per gallon refundable excise tax credit (which is not taxable), while the CBPC is a $1.01 per gallon credit that is nonrefundable, taxable and has limitations based on an entity’s tax liability. Rayonier produced and used an alternative fuel (“black liquor”) in its Performance Fibers business, which qualified for both credits. The Company claimed the AFMC on its original 2009 income tax return. In 2013, 2012 and 2011, management approved exchanges of black liquor gallons previously claimed under the AFMC for the CBPC. The net tax benefit from these exchanges of $18.8 million, $12.2 million and $5.8 million were recorded in discontinued operations in the respective periods. As a result of the spin-off of the Performance Fibers business in 2014, the Company recorded a $13.6 million valuation allowance in continuing operations related to CPBC remaining with the Company’s taxable REIT subsidiary and the limited potential use of the CBPC prior to its expiration on December 31, 2017.

Provision for Income Taxes from Continuing Operations

The (provision for)/benefit from income taxes consisted of the following:



	2014	2013	2012
Current
U.S. federal	$27,521	$27,338	$26,539
State	1,353	1,462	1,241
Foreign	—	(261)	—
	28,874	28,539	27,780
Deferred
U.S. federal	(7,260)	22,649	110
State	(357)	1,211	5
Foreign	1,633	(2,119)	(263)
	(5,984)	21,741	(148)
Changes in valuation allowance	(13,289)	(14,595)	(572)
Total	$9,601	$35,685	$27,060

A reconciliation of the U.S. federal statutory income tax rate to the actual income tax rate was as follows:



	2014				2013				2012
U.S. federal statutory income tax rate	$(15,695)		35.0	%	$(24,555)		35.0	%	$3,600	(35.0	)%
REIT income and taxable losses	32,058		(71.5	)	52,812		(75.3	)	27,724	(269.5	)
Foreign operations	(159	)	0.4		(95)		0.1		—	—
Loss on early redemption of Senior Exchangeable Notes	—		—		(859	)	1.2		—	—
Other	112		(0.3	)	101		(0.1	)	251	(2.5	)
Income tax benefit before discrete items	16,316		(36.4	)	27,404		(39.1	)	31,575	(307.0	)
CBPC valuation allowance	(13,644	)	30.4		—		—		—	—
Deferred tax inventory valuations	5,151		(11.5	)	983		(1.4	)	(4,920)	47.8
Uncertain tax positions	1,830		(4.1	)	800		(1.1	)	—	—
Return to accrual adjustments	—		—		—		—		(12)	0.1
Gain related to consolidation of New Zealand joint venture	—		—		5,634		(8.0	)	—	—
Reversal of REIT BIG tax payable	—		—		485		(0.7	)	—	—
Other	(52	)	0.2		379		(0.6	)	417	(4.0	)
Income tax benefit as reported for continuing operations	$9,601		(21.4	)%	35,685		(50.9	)%	$27,060	(263.1	)%

The Company’s effective tax rate is below the 35 percent U.S. statutory rate primarily due to tax benefits associated with being a REIT and from losses at Rayonier’s taxable operations from interest and general administrative expenses not allowed to be allocated to the discontinued operations of the Performance Fibers business.

Provision for Income Taxes from Discontinued Operations

On June 27, 2014 Rayonier completed the spin-off of its Performance Fibers business. Income tax expense related to Performance Fibers discontinued operations was $20.6 million, $84.4 million and $111.8 million for the years ended December 31, 2014, 2013 and 2012, respectively.

During 2013, Rayonier completed the sale of its Wood Products business for $80 million plus a working capital adjustment. Income tax expense related to the Wood Products business (recorded in discontinued operations) was $22.0 million ($21.1 million from the gain on sale) and $3.6 million for the years ended December 31, 2013 and 2012, respectively.

See Note 3 — Discontinued Operations for additional information on the spin-off of the Performance Fibers business and the sale of the Wood Products business.

Deferred Taxes

Deferred income taxes result from recording revenues and expenses in different periods for financial reporting versus tax reporting. The nature of the temporary differences and the resulting net deferred tax asset/liability for the two years ended December 31, were as follows:



	2014	2013 (a)
Gross deferred tax assets:
Liabilities for dispositions and discontinued operations	—	$28,050
Pension, postretirement and other employee benefits	1,994	43,058
Foreign and state NOL carryforwards	71,482	85,801
Tax credit carryforwards	13,644	52,682
Capitalized real estate costs	9,554	8,901
Other	8,067	20,970
Total gross deferred tax assets	104,741	239,462
Less: Valuation allowance	(13,644)	(33,889)
Total deferred tax assets after valuation allowance	$91,097	$205,573
Gross deferred tax liabilities:
Accelerated depreciation	(1,796)	(57,695)
Repatriation of foreign earnings	(8,817)	(9,065)
New Zealand forests, roads and carbon credits	(78,008)	(85,681)
Timber installment sale	(7,511)	(7,360)
Other	(1,304)	(5,247)
Total gross deferred tax liabilities	(97,436)	(165,048)
Net deferred tax (liability)/asset	$(6,339)	$40,525
Current portion of deferred tax asset	—	39,100
Noncurrent portion of deferred tax asset	8,057	10,720
Current portion of defered tax liability	(7,893)	—
Noncurrent portion of deferred tax liability	(6,503)	(9,295)
Net deferred tax (liability)/asset	$(6,339)	$40,525


(a)	Includes balances related to discontinued operations.

Included above are the following foreign net operating loss (“NOL”) and tax credit carryforwards as of December 31, 2014:



Item	Gross Amount	Valuation Allowance	Expiration
New Zealand JV NOL Carryforwards	$330,589	—	None
Cellulosic Biofuel Producer Credit	13,644	(13,644)	2017
Total Valuation Allowance		$(13,644)

In 2014, the Company recorded a tax deficiency on stock-based compensation of $0.8 million. In 2013 and 2012, the Company recorded excess tax benefits of $8.4 million and $7.6 million, respectively, related to stock-based compensation. These amounts were recorded directly to shareholders’ equity and were not included in the consolidated tax provision.

Unrecognized Tax Benefits

In accordance with generally accepted accounting principles, the Company recognizes the impact of a tax position if a position is “more-likely-than-not” to prevail.

A reconciliation of the beginning and ending unrecognized tax benefits for the three years ended December 31 is as follows:



	2014	2013	2012
Balance at January 1,	$10,547	$6,580	$6,580
Decreases related to prior year tax positions	(10,547)	(800)	—
Increases related to prior year tax positions	—	4,767	—
Balance at December 31,	—	$10,547	$6,580

The unrecognized tax benefits as of December 31, 2013 included $4.8 million related to an increased domestic production deduction on the Company’s amended 2009 tax return due to the inclusion of the CBPC income. Rayonier reversed this reserve during 2014 upon receipt of a refund from the IRS after its examination of the amended 2009 TRS tax return. The reserve included a $0.9 million unrecognized tax benefit, which was recorded in discontinued operations. The remaining $5.8 million of unrecognized tax benefits as of December 31, 2013 was related to positions on the Company’s 2010 tax return, on which the statute of limitations on examination expired during 2014. As such, the Company removed the $5.8 million unrecognized tax benefit liability during 2014, resulting in a $1.8 million income tax benefit and a $4.0 million reduction of a non-current tax asset. There are no unrecognized tax benefit liabilities remaining as of December 31, 2014.

The total amount of unrecognized tax benefits that, if recognized, would have affected the effective tax rate at December 31, 2014, 2013 and 2012 is $0, $6.6 million and $2.6 million, respectively.

The Company records interest (and penalties, if applicable) related to unrecognized tax benefits in non-operating expenses. The Company recorded a $0.5 million benefit to interest expense in 2014. For the years ended December 31, 2013 and 2012, the Company recorded interest expense of $0.1 million and $0.2 million, respectively. The Company had liabilities of $0 and $0.5 million for the payment of interest at December 31, 2014 and 2013, respectively.

Tax Statutes

The following table provides detail of the tax years that remain open to examination by the IRS and other significant taxing jurisdictions:



Taxing Jurisdiction	Open Tax Years
U.S. Internal Revenue Service	2011 – 2014
State of Alabama	2009 – 2013
State of Florida	2010 – 2014
State of Georgia	2010 – 2014
New Zealand Inland Revenue	2010 – 2014