Income Taxes

The components of income before income taxes and income tax expense for the years ended December 31, 2018, 2017 and 2016 are as follows (in thousands):



	Years ended December 31,
	2018			2017			2016
Income before income taxes:
Domestic	$	5,577		$	2,901		$	13,988
Foreign	9,186			16,788			16,046
Total income before income taxes	$	14,763		$	19,689		$	30,034

Income tax expense (benefit):
Current:
Federal	$	388		$	3,210		$	5,511
State and local	378			256			1,152
Foreign	3,285			3,645			4,885
Total current	4,051			7,111			11,548
Deferred:
Federal	813			(241		)	(1,039		)
State and local	258			(176		)	56
Foreign	(195		)	104			(778		)
Total deferred	876			(313		)	(1,761		)
Total income tax expense	$	4,927		$	6,798		$	9,787

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. The sources and tax effects of the differences are as follows:



	December 31,
	2018		2017		2016
Federal income tax rate	21.0	%	35.0	%	35.0	%
State and local taxes net of federal benefit	1.9		0.2		2.4
Domestic production deduction	—		(1.1	)	(0.6	)
Foreign tax rate differential	1.8		(8.8	)	(5.8	)
Permanent differences	2.7		(6.2	)	4.8
Other	2.6		(0.9	)	(3.2	)
Global Intangible Low-taxed Income	1.5		—		—
Tax Cuts and Jobs Act of 2017	1.9		16.3		—
Effective tax rate	33.4	%	34.5	%	32.6	%

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company recognized the tax effects of the 2017 Tax Act in the year ended December 31, 2017 and recorded $3.2 million in income tax expense. The provisional tax benefit amount recorded related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was $1.4 million. The provisional amount recorded related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was $4.6 million.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company applied the guidance in SAB 118 when accounting for the enactment-date effects of the 2017 Tax Act in 2017 and throughout 2018. At December 31, 2018, we have completed our accounting for all the enactment-date income tax effects of the 2017 Tax Act. We increased our year ended December 31, 2017 tax expense related to the mandatory deemed repatriation of foreign earnings of $4.6 million to $4.9 million. No adjustment is required to the tax benefit of $1.4 million recorded for the year ended December 31, 2017, related to the remeasurement of certain deferred tax assets and liabilities.

The 2017 Tax Act creates a requirement that Global Intangible Low-Taxed Income (“GILTI”) earned by a controlled foreign corporation (“CFC”) must be included in the gross income of the U.S. shareholder. The FASB Staff Q&A Topic 740, No. 5, “Accounting for Global Intangible Low-Taxed Income” states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis difference expected to reverse as GILTI in future years, or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI as a current period expense when incurred.

Income tax expense was $4.9 million for the year ended December 31, 2018 compared to $6.8 million for the year ended December 31, 2017. Our effective income tax rate was 33.4% and 34.5% for the years ended December 31, 2018 and 2017, respectively. The decrease in the effective income tax rate compared to 2017 is primarily due to the non-recurring unfavorable effect of the 2017 Tax Act on the Company’s 2017 effective tax rate.

Uncertain Tax Positions

As of December 31, 2018 and 2017, we had no uncertain tax positions reflected on our consolidated balance sheet. The Company files income tax returns in U.S. federal, state and local jurisdictions, and various non-U.S. jurisdictions, and is subject to audit by tax authorities in those jurisdictions. Tax years 2015 through 2018 remain open to examination by these tax jurisdictions, and earlier years remain open to examination in certain of these jurisdictions which have longer statutes of limitations.

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Significant components of our deferred tax assets and liabilities are as follows (in thousands):



	December 31,
	2018			2017
Deferred tax assets:
Allowance for doubtful accounts	$	531		$	559
Accrued liabilities and other	2,564			2,381
Stock-based compensation expense	296			599
Net federal, state and foreign operating loss carryforwards	1,953			1,432
Foreign tax credit carryforwards	266			—
Deferred tax assets	5,610			4,971
Valuation allowance on deferred tax assets	(1,385		)	(1,502		)
Deferred tax liabilities:
Other	1,181			208
Intangible assets, property and equipment, principally due to difference in depreciation and amortization	10,784			5,312
Net deferred tax liabilities	$	(7,740	)	$	(2,051	)

As of December 31, 2018, we had foreign and U.S. state net operating loss carryforwards of $8.8 million for tax purposes, which will be available to offset future taxable income. If not used, these carryforwards will expire beginning in 2019.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets may not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon these factors, management placed a valuation allowance of $1.4 million and $1.5 million as of the years ended December 31, 2018 and 2017, respectively, against certain deferred tax assets, including net operating loss carryforwards, due to the uncertainty of future profitability in foreign jurisdictions. Management believes it is more likely than not that the Company will realize the benefits of the remaining deferred tax assets.

Foreign Income

The 2017 Tax Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, we intend to continue to invest these earnings, as well as the capital invested in these subsidiaries, indefinitely outside of the U.S. and do not expect to incur any significant, additional taxes related to such amounts. The Company has not provided for any additional outside basis difference inherent in its foreign subsidiaries, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable.