Income Taxes

On December 22, 2017, the US Congress enacted the Tax Act, which made significant changes to US federal income tax law, including a reduction in the federal corporate tax rate to 21% effective January 1, 2018. Under US GAAP, we are required to recognize the effect of a rate change on deferred tax assets and liabilities in the period in which the tax rate change is enacted. Therefore, the rate change enacted by the Tax Reform Legislation resulted in the recognition of a deferred tax benefit of $32.8 million at December 31, 2017.

On December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Tax Act. Management has evaluated the relevant provisions of the Tax Act to the Company and accounted for the impacts on a provisional basis in the financial statements as of December 31, 2017. The provisional amount is subject to change based on how states conform to the Tax Act, as that information is not readily available for many states at this time. Any revisions to the estimated impacts of the Tax Act will be recorded quarterly until the computations are complete, which is expected to be no later than the fourth quarter of 2018.

Deferred tax assets and liabilities as of December 31 are as follows:



	2017			2016
	(in thousands)
Deferred income tax assets:
Allowance for doubtful accounts	$	515		$	559
Accrued expenses	6,550			9,275
Stock-based compensation	156			254
Insurance accruals	18,225			29,190
State net operating loss carryforward	237			451
Indirect tax benefits of unrecognized tax benefits	1,278			3,334
Other	—			2
Total gross deferred tax assets	26,961			43,065
Less valuation allowance	—			—
Net deferred tax assets	26,961			43,065
Deferred income tax liabilities:
Property and equipment	(81,322		)	(122,367		)
Goodwill	(7,984		)	(9,857		)
Prepaid expenses	(1,406		)	(1,713		)
	(90,712		)	(133,937		)
Net deferred tax liability	$	(63,751	)	$	(90,872	)

The deferred tax amounts above have been classified in the accompanying consolidated balance sheets at December 31, 2017 and 2016 as follows:



	2017			2016
	(in thousands)
Noncurrent assets, net	$	1,737		$	3,785
Long-term liabilities, net	(65,488		)	(94,657		)
	$	(63,751	)	$	(90,872	)

We have not recorded a valuation allowance against any deferred tax assets at December 31, 2017 and 2016. In management’s opinion, it is more likely than not that we will be able to utilize these deferred tax assets in future periods as a result of our history of profitability, taxable income, and reversal of deferred tax liabilities.

Income tax expense consists of the following:



	2017			2016			2015
	(in thousands)
Current income taxes:
Federal	$	17,997		$	34,664		$	33,364
State	(1,495		)	454			2,703
	16,502			35,118			36,067
Deferred income taxes:
Federal	(28,020		)	(5,291		)	5,170
State	843			(164		)	2,478
	(27,177		)	(5,455		)	7,648
Total	$	(10,675	)	$	29,663		$	43,715

The income tax provision differs from the amount determined by applying the U.S. federal tax rate as follows:



	2017			2016			2015
	(in thousands)
Federal tax at statutory rate (35%)	$	22,574		$	30,117		$	40,870
State taxes, net of federal benefit	178			1,135			4,022
Non-taxable interest income	(7		)	(7		)	(6		)
Uncertain income tax penalties and interest, net	(1,208		)	(1,473		)	(1,006		)
Enacted federal tax rate change	(32,789		)	—			—
Other	577			(109		)	(165		)
	$	(10,675	)	$	29,663		$	43,715

At December 31, 2017 and December 31, 2016, we had a total of $5.8 million and $8.8 million in gross unrecognized tax benefits, respectively, included in long-term income taxes payable in the consolidated balance sheets. Of this amount, $4.8 million and $5.7 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate as of December 31, 2017 and December 31, 2016, respectively. Unrecognized tax benefits were a net decrease of $2.9 million and $2.8 million during the years ended December 31, 2017 and 2016, respectively, due mainly to the expiration of certain statutes of limitation net of additions and settlements with respective states. This had the effect of reducing the effective state tax rate during these respective periods. The total net amount of accrued interest and penalties for such unrecognized tax benefits was $2.3 million and $3.2 million at December 31, 2017 and December 31, 2016, respectively, and is included in income taxes payable in the consolidated balance sheets. Net interest and penalties included in income tax expense for the years ended December 31, 2017, 2016 and 2015 was a benefit of approximately $0.9 million, $1.5 million, and $1.0 million respectively. Income tax expense is increased each period for the accrual of interest on outstanding positions and penalties when the uncertain tax position is initially recorded. Income tax expense is reduced in periods by the amount of accrued interest and penalties associated with reversed uncertain tax positions due to lapse of applicable statute of limitations, when applicable or when a position is settled. Income tax expense was reduced during the years ended December 31, 2017, 2016 and 2015 due to reversals of interest and penalties due to lapse of applicable statute of limitations and settlements, net of additions for interest and penalty accruals during the same period. These unrecognized tax benefits relate to risks associated with state income tax filing positions for our corporate subsidiaries.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2017			2016
	(in thousands)
Balance at January 1,	$	8,751		$	11,569
Additions based on tax positions related to current year	135			592
Additions for tax positions of prior years	—			—
Reductions for tax positions of prior years	(331		)	(108		)
Reductions due to lapse of applicable statute of limitations	(2,699		)	(3,302		)
Settlements	(17		)	—
Balance at December 31,	$	5,839		$	8,751

A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. These changes could result from the expiration of the statute of limitations, examinations or other unforeseen circumstances. We do not have any outstanding litigation related to tax matters. At this time, management’s best estimate of the reasonably possible change in the amount of gross unrecognized tax benefits is a decrease of approximately $2.2 million to a decrease of $3.2 million during the next twelve months, mainly due to the expiration of certain statute of limitations, net of additions. The federal statute of limitations remains open for the years 2014 and forward. Tax years 2007 and forward are subject to audit by state tax authorities depending on the tax code and administrative practice of each state.