Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

14. Income Taxes

Our provision for (benefit from) income taxes for the years ended

December 31, 2018,

2017

and

2016

consisted of the following:

	Year Ended December 31,
	2018			2017		2016
	(Dollars in thousands)
Current tax provision:
Federal	$	47,547		$	41,737	$	32,102
State		1,798			1,374		323
Total current		49,345			43,111		32,425
Deferred tax provision:
Federal		(2,755	)		37,398		10,960
State		6,484			7,388		5,185
Total deferred		3,729			44,786		16,145
Provision for income taxes	$	53,074		$	87,897	$	48,570

The provision for (benefit from) income taxes differs from the amount that would be computed by applying the statutory federal income tax rate of

21%

in

2018

and

35%

in

2017

and

2016

to income before income taxes as a result of the following:

	Year Ended December 31,
	2018			2017			2016
	(Dollars in thousands)
Tax expense computed at federal statutory rate	$	55,409		$	80,406		$	53,123
State income tax expense, net of federal benefit		9,661			6,432			4,553
Other permanent differences		(31	)		(748	)		(647	)
Domestic manufacturing deduction		-			(5,387	)		(5,563	)
Limitation on executive compensation		2,912			-			-
Rate change effect of tax method changes		(5,661	)		-			-
Tax expense (benefit) related to an increase (decrease) in unrecognized tax benefits		4,680			75			75
Expiration of stock-based compensation		415			2,832			-
Federal energy credits		(12,446	)		-			(3,428	)
Rate changes		(78	)		10,018			-
Change in valuation allowance		(885	)		(8,978	)		253
Other		(902	)		3,247			204
Provision for income taxes	$	53,074		$	87,897		$	48,570
Effective tax (benefit) rate		20.1	%		38.3	%		32.0	%

The year-over-year change in our effective tax rate from

2017

to

2018

was impacted by the following items:

(

1

) The net impact from the enactment of the Tax Cuts and Jobs Act, which reduced the Federal corporate tax rate from

35%

to

21%

but also reduced the deductibility of certain executive based compensation and eliminated the domestic manufacturing deduction beginning in

2018

and resulted in a

$10.0

million adjustment in the

fourth

quarter of

2017

to reduce the carrying value of our net deferred tax assets due to the reduction in the Federal tax rate.

(

2

) Our effective tax rate in

2018

includes a benefit from energy tax credits, the majority of which relate to homes closed during

2017,

which were

not

included in our

2017

effective tax rate because the credit was retroactively extended after

December 31, 2017.

(

3

) Our effective tax rate in

2018

includes the benefit of certain tax method changes that were implemented with the filing of our

2017

Federal tax return.

(

4

) Our effective tax rate in

2018

includes an increase in our liability for uncertain tax positions.

(

5

) Our effective tax rate in

2017

includes the release of a valuation allowance related to our metropolitan district bond securities that were sold in

2017.

The year-over-year change in our effective tax rate from

2016

to

2017

was impacted by the following items:

(

1

) The Federal tax rate change from

35%

to

21%,

which required an adjustment to the carrying value of our net deferred tax assets at

December 31, 2017

by

$10.0

million.

(

2

) Our effective tax rate in

2017

includes the expiration of stock-based compensation awards, which were recognized through the income tax provision in

2017

according to Accounting Standards Update

2016

-

09,

Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting,

as opposed to additional paid-in capital in

2016.

(

3

) Our effective tax rate in

2017

includes the release of a valuation allowance related to our metropolitan district bond securities that were sold in

2017.

(

4

) Our effective tax rate in

2016

includes a benefit from energy credits, which were

not

included in

2017

because the credit had

not

been extended to

2017

as of

December 31, 2017.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax asset are as follows:

	December 31,
	2018			2017
	(Dollars in thousands)
Deferred tax assets:
State net operating loss carryforwards	$	18,045		$	25,398
Stock-based compensation expense		11,767			10,280
Warranty, litigation and other reserves		12,844			10,763
Accrued compensation		2,622			699
Asset impairment charges		5,848			3,738
Inventory, additional costs capitalized for tax purposes		5,863			4,260
Other, net		1,680			1,887
Total deferred tax assets		58,669			57,025
Valuation allowance		(7,598	)		(8,170	)
Total deferred tax assets, net of valuation allowance		51,071			48,855
Deferred tax liabilities:
Property, equipment and other assets		8,440			3,705
Deferral of profit on home sales		1,817			-
Unrealized gain on marketable securities		375			1,290
Other, net		3,261			2,380
Total deferred tax liabilities		13,893			7,375
Net deferred tax asset	$	37,178		$	41,480

At

December 31, 2018,

we had

$18.0

million in tax-effected state net operating loss carryforwards. The state operating loss carryforwards, if unused, will begin to expire in

2019.

At

December 31, 2018

we had a valuation allowance of

$7.6

million, a decrease of

$0.6

million from the prior year. The valuation allowance is related to various state net operating loss carryforwards where realization is uncertain at this time due to the limited carryforward periods coupled with minimal activity that exists in certain states.

At

December 31, 2018

and

2017,

our total liability for uncertain tax positions was

$10.4

million and

$0.5

million, respectively, a portion of which has been offset against our state net operating loss carryforward deferred tax asset. The following table summarizes activity for the gross unrecognized tax benefit component of our total liability for uncertain tax positions for the years ended

December 31, 2018,

2017

and

2016:

	Year Ended December 31,
	2018			2017			2016
	(Dollars in thousands)
Gross unrecognized tax benefits at beginning of year	$	547		$	577		$	488
Increases related to prior year tax positions		8,190			94			156
Decreases related to prior year tax positions		-			-			-
Lapse of applicable statute of limitations		(158	)		(124	)		(67	)
Gross unrecognized tax benefits at end of year	$	8,579		$	547		$	577

At

December 31, 2018

and

2017,

there was

$3.5

 million and

$0.5

million of unrecognized tax benefits that if recognized, would reduce our effective tax rate.

The net expense for interest and penalties for the years ended

December 31, 2018,

2017

and

2016

was

$1.9

million,

$0.0

million and

$0.3

million, respectively, and are included in provision for income taxes in the consolidated statements of operations and comprehensive income.

We have taken positions in certain taxing jurisdictions for which it is reasonably possible that the total amounts of unrecognized tax benefits

may

decrease within the next

twelve

months. The possible decrease could result from additional information becoming available supporting the Company’s calculation of the tax benefit under applicable tax law.  The estimated range of the reasonably possible decrease is

$0.0

million to

$3.0

million.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are subject to U.S. federal income tax examination for calendar tax years ending

2015

through

2018.

Additionally, we are subject to various state income tax examinations for the

2014

through

2018

calendar tax years.

As of

December 31, 2018,

we have completed our assessment of the impact of the Tax Cuts and Job Act and as a result there were

no

changes to the provisional amounts recorded as of

December 31, 2017.