Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

Following is a summary of the Company’s income tax expense (benefit):



	Year Ended December 31,
(In Thousands)	2019		2018			2017
Current Income Tax Expense:
Federal	$	2,033	$	(5,380	)	$	(3,530	)
State	9,316		13,015			9,772
	11,349		7,635			6,242
Deferred Income Tax Expense (Benefit):
Federal	49,911		48,287			(60,547		)
State	56		72			1,346
	49,967		48,359			(59,201		)
Income Tax Expense (Benefit)	$	61,316	$	55,994		$	(52,959	)

Significant components of the Company’s deferred income tax liabilities and assets are as follows:



	December 31,
(In Thousands)	2019		2018
Deferred Tax Liabilities:
Lease Merchandise and Property, Plant and Equipment	$	176,017	$	174,171
Goodwill and Other Intangibles	44,435		41,183
Investment in Partnership	191,114		159,070
Operating Lease Right-of-Use Assets	75,146		—
Other, Net	2,019		1,804
Total Deferred Tax Liabilities	488,731		376,228
Deferred Tax Assets:
Accrued Liabilities	20,221		21,918
Advance Payments	9,575		9,232
Operating Lease Liabilities	83,154		—
Other, Net	66,212		86,339
Total Deferred Tax Assets	179,162		117,489
Less Valuation Allowance	—		—
Net Deferred Tax Liabilities	$	309,569	$	258,739

The Company’s effective tax rate differs from the statutory United States Federal income tax rate as follows:



	Year Ended December 31,
	2019		2018		2017
Statutory Rate	21.0	%	21.0	%	35.0	%
Increases (Decreases) in United States Federal Taxes
Resulting From:
State Income Taxes, net of Federal Income Tax Benefit	9.8		4.0		2.7
Permanent difference for loss on Progressive FTC matter	39.6		—		—
Other Permanent Differences	(2.5	)	(1.2	)	—
Federal Tax Credits	(2.3	)	(0.5	)	(0.8	)
Change in Valuation Allowance	—		—		(0.4	)
Remeasurement of net Deferred Tax Liabilities	(1.8	)	(0.2	)	(58.2	)
Other, net	2.3		(0.9	)	(0.4	)
Effective Tax Rate	66.1	%	22.2	%	(22.1	)%

On December 22, 2017, the President signed the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act, among other things, (i) lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018; (ii) provided for 100% expense deduction of certain qualified depreciable assets, which includes the Company's lease merchandise inventory, purchased after September 27, 2017 (but would be phased down starting in 2023); and (iii) the manufacturing deduction that expired in 2017 under the previous tax legislation was not extended. Consequently, the Company remeasured its net deferred tax liabilities as of December 31, 2017 using the lower U.S. corporate income tax rate, which resulted in a provisional estimated $140 million non-cash income tax benefit recognized during the year ended December 31, 2017. In connection with the provisional analysis, the Company recorded an immaterial income tax net benefit during the year ended December 31, 2018 and finalized its analysis over the one-year measurement period that ended on December 22, 2018. The Company was in a net operating loss position for tax purposes in 2017 and 2018 as a result of the Tax Act's 100% expense deduction on qualified depreciable assets discussed above. The net operating loss and credits earned during 2017 were carried back and generated refunds of $15.6 million received in March 2019. The net operating loss earned during 2018 must be carried forward and will be available to offset 80% of future taxable income as provided by the Tax Act.

The Company is estimating taxable income in 2019. As stated above, the net operating loss earned during 2018 will be available to offset 80% of 2019 taxable income. At December 31, 2019, the Company had approximately $187 million of federal tax net operating loss carryforwards, which can be carried forward indefinitely and will not expire, and $4.1 million of federal foreign tax credit carryforwards, which will begin to expire in 2027. In addition, at December 31, 2019, the Company had $4.7 million of tax-effected state net operating loss carryforwards and $8.1 million of state tax credit carryforwards, which will both begin to expire in 2022.

As result of the 100% bonus depreciation provisions in the Tax Act not being enacted until December 22, 2017, the Company made more than the required estimated federal tax liability payments in 2017; and therefore, had a $100.0 million income tax receivable as of December 31, 2017. The Company received a refund of $77.0 million in February 2018.

The Company files a federal consolidated income tax return in the United States and the separate legal entities file in various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local tax examinations by tax authorities for years before 2016.

The following table summarizes the activity related to the Company’s uncertain tax positions:



	Year Ended December 31,
(In Thousands)	2019			2018			2017
Balance at January 1,	$	2,529		$	2,269		$	2,594
Additions Based on Tax Positions Related to the Current Year	236			269			456
Additions for Tax Positions of Prior Years	1,957			615			232
Prior Year Reductions	(76		)	(85		)	(236		)
Statute Expirations	(306		)	(257		)	(346		)
Settlements	—			(282		)	(431		)
Balance at December 31,	$	4,340		$	2,529		$	2,269

As of December 31, 2019 and 2018, the amount of uncertain tax benefits that, if recognized, would affect the effective tax rate is $4.2 million and $2.5 million, respectively, including interest and penalties.

During the years ended December 31, 2019 and 2018, the Company recognized interest and penalties of $0.2 million and $0.1 million, respectively. During the year ended December 31, 2017, the Company recognized a net benefit of $0.6 million related to interest and penalties. The Company had $0.5 million and $0.3 million of accrued interest and penalties at December 31, 2019 and 2018, respectively. The Company recognizes potential interest and penalties related to uncertain tax benefits as a component of income tax expense (benefit).