Income Taxes

We are included in the consolidated federal income tax returns and the combined state income tax returns of CenturyLink. CenturyLink treats our consolidated results as if we were a separate taxpayer. The policy requires us to settle our tax liabilities through a change in our general intercompany obligation based upon our separate return taxable income, which is reflected in advances to affiliates on our consolidated balance sheets and the changes in advances to affiliates are reflected as investing activities on our consolidated statements of cash flows. Because we are included in the consolidated federal income tax returns and the combined state income tax returns of CenturyLink, any tax audits involving CenturyLink will also involve us.

Beginning with the 2013 tax year, CenturyLink's federal consolidated returns are subject to annual examination by the IRS.

Our open income tax years by major jurisdiction are as follows at December 31, 2016:



Jurisdiction		Open Tax Years
Federal		2013—current
State
Arizona		2010—current
Other states		2012—current

Since the period for assessing additional liability typically begins upon the filing of a return, it is possible that certain jurisdictions could assess tax for years prior to the open tax years disclosed above. Additionally, it is possible that certain jurisdictions in which we do not believe we have an income tax filing responsibility, and accordingly did not file a return, may attempt to assess a liability, or other jurisdictions to which we pay taxes may attempt to assert that we owe additional taxes.

As of December 31, 2016, 2015 and 2014, we had no liability for interest related to uncertain tax positions. We did not record a liability for interest related to uncertain tax positions for the year ended December 31, 2016. We made no accrual for penalties related to income tax positions.

Income Tax Expense

The components of the income tax expense from continuing operations are as follows:



	Years Ended December 31,
	2016			2015		2014
	(Dollars in millions)
Income tax expense:
Current:
Federal and foreign	$	686		734		738
State and local	115			114		129
Total current	801			848		867
Deferred:
Federal and foreign	(103		)	(170	)	(209	)
State and local	(20		)	(19	)	(19	)
Total deferred	(123		)	(189	)	(228	)
Income tax expense	$	678		659		639

The effective income tax rate for continuing operations differs from the statutory tax rate as follows:



	Years Ended December 31,
	2016		2015		2014
	(in percent)
Effective income tax rate:
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes-net of federal effect	3.5	%	3.6	%	4.0	%
Other	—	%	(0.6	)%	0.7	%
Effective income tax rate	38.5	%	38.0	%	39.7	%

Deferred Tax Assets and Liabilities

The components of the deferred tax assets and liabilities are as follows:



	As of December 31,
	2016			2015
	(Dollars in millions)
Deferred tax assets and liabilities:
Deferred tax liabilities:
Property, plant and equipment	$	(1,384	)	(1,431	)
Intangibles assets	(1,088		)	(1,153	)
Receivable from an affiliate due to pension plan participation	(452		)	(460	)
Other	—			(59	)
Total deferred tax liabilities	(2,924		)	(3,103	)
Deferred tax assets:
Payable to affiliate due to post-retirement benefit plan participation	954			921
Debt premiums	—			21
Other	209			277
Total deferred tax assets	1,163			1,219
Valuation allowance on deferred tax assets	(12		)	(12	)
Net deferred tax assets	1,151			1,207
Net deferred tax liabilities	$	(1,773	)	(1,896	)

At December 31, 2016, we have established a valuation allowance of $12 million as it is not more likely than not that this amount of deferred tax assets will be realized. There was no change to the valuation allowance in 2016.

Other Income Tax Information

We paid $801 million, $848 million and $861 million to QSC related to income taxes in the years ended December 31, 2016, 2015 and 2014, respectively.