Income taxes

12 Months Ended

Dec. 31, 2019

Income taxes:

While we are a not-for-profit membership corporation formed under the laws of the state of Georgia, we are subject to federal and state income taxation. As a taxable cooperative, we are allowed to deduct patronage dividends that we allocate to our members for purposes of calculating our taxable income. We annually allocate income and deductions between patronage and non-patronage activities and substantially all of our income is from patronage-sourced activities, resulting in no current period income tax expense or current or deferred income tax liability.

Although we believe that treatment of non-member sales as patronage-sourced income is appropriate, this treatment has not been examined by the Internal Revenue Service. If this treatment was not sustained, we believe that the amount of taxes on such non-member sales, after allocating related expenses against the revenues from such sales, would not have a material adverse effect on our financial condition or results of operations and cash flows.

We account for income taxes pursuant to the authoritative guidance for accounting for income taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

The difference between the statutory federal income tax rate on income before income taxes and our effective income tax rate is summarized as follows:


	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	35.0	%
Patronage exclusion	(21.0)	%	(20.8)	%	(34.1)	%
AMT credit monetization	0.0	%	0.0	%	2.2	%
Other	0.0	%	(0.2)	%	(0.9)	%
Effective income tax rate	0.0	%	0.0	%	2.2	%

The tax benefit reflected in the effective income tax rate reconciliation for 2017 relates to the $1,117,000 current tax benefit realized as a result of monetizing the remaining balance of alternative minimum tax credits. This benefit is as a result of a refundable credit, and since it is applied after considering the patronage dividend deduction, it is not allocated to our members, but instead is a source of cash to the taxpayer applied against its normal operating expenses. The benefit is shown as a component of production operating expenses on the statement of revenues and expenses.

The components of our net deferred tax assets and liabilities as of December 31, 2019 and 2018 were as follows:


	(dollars in thousands)
	2019		2018
Deferred tax assets
Net operating losses	$	1,123	$	3,830
Tax credits (alternative minimum tax and other)	—		—
Accounting for Rocky Mountain transactions	231,844		231,543
Advance payments	74,482		46,708
Other assets	88,821		82,655
Deferred tax assets	396,270		364,736
Less: Valuation allowance	(1,123)		(3,830)
Net deferred tax assets	$	395,147	$	360,906
Deferred tax liabilities
Depreciation	$	258,724	$	268,039
Accounting for Rocky Mountain transactions	118,021		116,226
Other liabilities	68,035		75,691
Deferred tax liabilities	444,780		459,956
Net deferred tax liabilities	49,633		99,050
Less: Patronage exclusion	(49,633)		(99,050)
Net deferred taxes	$	—	$	—

As of December 31, 2019, we have federal tax net operating loss carryforwards of $4,362,000 which expire in the year 2020. Due to the tax basis method for allocating patronage dividends and as shown by the above valuation allowance, it is not more likely than not that the deferred tax asset related to the net operating losses will be realized.

On December 22, 2017, the President signed into law Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act, or the Act. The Act made significant changes to U.S. federal income tax laws. The Act reduced the federal tax rate for corporations from 35% to 21% effective January 1, 2018 and changed or applied limitations to certain tax deductions.

The authoritative guidance for income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

We file a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the year 2016 and forward. State jurisdictions have statutes of limitations generally ranging from three to five years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by tax authorities in major state jurisdictions include 2016 and forward. We have no liabilities recorded for uncertain tax positions.