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Income Taxes

12 Months Ended

Dec. 31, 2019

On December 22, 2017 the Tax Act made substantial changes to corporate income tax laws. Among the key provisions were a U.S. corporate tax rate reduction from 35% to 21% effective for tax years beginning January 1, 2018 and a one-time transition tax on the deemed repatriation of cumulative earnings from foreign subsidiaries and changes to U.S. taxation of foreign earnings from a worldwide to a territorial tax system effective for tax years beginning January 1, 2018. The Company recognized the effects of the Tax Act in its Consolidated Financial Statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of FASB Accounting Standards Codification Topic 740, Income Taxes, in the reporting period that the Tax Act was signed into law.

In 2017 the Company recorded a provisional income tax benefit of $317 million related to the remeasurement of its net deferred income tax liabilities as a result of the reduced corporate tax rate, and a provisional tax expense of $104 million for the one-time transition tax on the deemed repatriation of cumulative foreign subsidiary earnings.

The Company completed the accounting for the effects of the Tax Act during 2018 and recorded an additional income tax expense of $30 million for the one-time transition tax on the deemed repatriation of foreign earnings.

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



		Year Ended December 31,
		2019			2018			2017
Current
	Federal	$	(3	)	$	(7	)	$	—
	State	41			36			5
	Foreign	50			59			37
	Current income tax provision	88			88			42

Deferred
	Federal	41			63			(205		)
	State	(37		)	(39		)	(5		)
	Foreign	(107		)	(10		)	18
	Deferred income tax provision	(103		)	14			(192		)
Provision for (benefit from) income taxes		$	(15	)	$	102		$	(150	)

Pretax income for domestic and foreign operations consists of the following:



	Year Ended December 31,
	2019		2018		2017
United States	$	125	$	114	$	17
Foreign	162		153		194
Pretax income	$	287	$	267	$	211

Deferred income tax assets and liabilities are comprised of the following:



		As of December 31,
		2019			2018
Deferred income tax assets:
	Net tax loss carryforwards	$	1,645		$	1,390
	Long-term operating lease liabilities	678			—
	Accrued liabilities and deferred revenue	236			230
	Tax credits	20			17
	Depreciation and amortization	17			16
	Provision for doubtful accounts	8			6
	Other	75			38
	Valuation allowance ^(a)	(214		)	(311		)
Deferred income tax assets		2,465			1,386

Deferred income tax liabilities:
	Operating lease right-of-use assets	672			—
	Depreciation and amortization	108			60
	Prepaid expenses	17			20
	Other	6			5
Deferred income tax liabilities		803			85
Deferred income tax assets, net		$	1,662		$	1,301

__________

^(a)

The valuation allowance of $214 million at December 31, 2019 relates to tax loss carryforwards and certain deferred tax assets of $192 million and $22 million, respectively. The valuation allowance will be reduced when and if the Company determines it is more likely than not that the related deferred income tax assets will be realized. The valuation allowance of $311 million at December 31, 2018 relates to tax loss carryforwards and certain deferred tax assets of $283 million and $28 million, respectively. The valuation allowance will be reduced when and if the Company determines it is more likely than not that the related deferred income tax assets will be realized.

Deferred income tax assets and liabilities related to vehicle programs are comprised of the following:



	As of December 31,
	2019		2018
Deferred income tax assets:
Depreciation and amortization	$	54	$	44
Other	48		—
Deferred income tax assets	102		44

Deferred income tax liabilities:
Depreciation and amortization	2,243		2,005
Other	48		—
Deferred income tax liabilities	2,291		2,005
Deferred income tax liabilities under vehicle programs, net	$	2,189	$	1,961

At December 31, 2019, the Company had U.S. federal net operating loss carryforwards of approximately $6.0 billion. The majority of the net operating loss carryforwards expire by 2031 and a significant remaining portion has an indefinite utilization period pursuant to the Tax Act. Such net operating loss carryforwards are primarily related to accelerated depreciation of the Company’s U.S. vehicles. Currently, the Company does not record valuation allowances on the majority of its U.S. federal tax loss carryforwards as there are adequate deferred tax liabilities that could be realized within the carryforward period. At December 31, 2019, the Company had foreign net operating loss carryforwards of approximately $981 million with an indefinite utilization period.

At December 31, 2019, we have undistributed earnings of certain foreign subsidiaries of approximately $811 million that we have indefinitely reinvested, and on which we have not recognized deferred taxes. Estimating the amount of potential tax is not practicable because of the complexity and variety of assumptions necessary to compute the tax.

The reconciliation between the U.S. federal income tax statutory rate and the Company’s effective income tax rate is as follows:



		Year Ended December 31,
		2019		2018		2017
U.S. federal statutory rate		21.0	%	21.0	%	35.0	%
Adjustments to reconcile to the effective rate:
	State and local income taxes, net of federal tax benefits	(1.7	)	5.5		3.8
	Changes in valuation allowances	(26.9	)	6.3		(4.7	)
	Taxes on foreign operations at rates different than statutory U.S. federal rates	3.4		(5.2	)	(3.6	)
	Stock-based compensation	—		(0.8	)	(3.4	)
	Tax Act (benefit) expense	—		11.2		(100.8	)
	Other non-deductible (non-taxable) items	(1.4	)	1.1		2.2
	Other	0.4		(0.9	)	0.4
		(5.2	)%	38.2	%	(71.1	)%

The following is a tabular reconciliation of the gross amount of unrecognized tax benefits for the year:



		2019			2018			2017
Balance, January 1		$	61		$	63		$	59
	Additions for tax positions related to current year	6			8			6
	Additions for tax positions for prior years	—			—			9
	Reductions for tax positions for prior years	(8		)	(6		)	(10		)
	Settlements	(4		)	(3		)	—
	Statute of limitations	(1		)	(1		)	(1		)
Balance, December 31		$	54		$	61		$	63

The Company does not anticipate that total unrecognized tax benefits will change significantly in 2020.

The Company is subject to taxation in the United States and various foreign jurisdictions. As of December 31, 2019, the 2016 through 2018 tax years generally remain subject to examination by the federal tax authorities. The 2013 through 2018 tax years generally remain subject to examination by various state tax authorities. In significant foreign jurisdictions, the 2012 through 2018 tax years generally remain subject to examination by their respective tax authorities.

Substantially all of the gross amount of the unrecognized tax benefits at December 31, 2019, 2018 and 2017, if recognized, would affect the Company’s provision for, or benefit from, income taxes. As of December 31, 2019, the Company’s unrecognized tax benefits were offset by an immaterial tax loss carryforward.

The following table presents unrecognized tax benefits:



	As of December 31,
	2019		2018
Unrecognized tax benefit in non-current income taxes payable ^(a)	$	57	$	41
Accrued interest payable on potential tax liabilities ^(b)	27		29

__________


^(a)	Pursuant to the agreements governing the disposition of certain subsidiaries in 2006, the Company is entitled to indemnification for certain pre-disposition tax contingencies. As of December 31, 2019 and 2018, $13 million, respectively, of unrecognized tax benefits are related to tax contingencies for which the Company believes it is entitled to indemnification.

^(b)

The Company recognizes potential interest related to unrecognized tax benefits within interest expense related to corporate debt, net on the accompanying Consolidated Statements of Operations. Penalties incurred during the years ended December 31, 2019, 2018 and 2017, were not significant and were recognized as a component of the provision for income taxes.