Income Taxes

12 Months Ended

Dec. 31, 2018

On December 22, 2017, the US Congress enacted the Tax Act, which made significant changes to U.S. federal income tax law, including a reduction in the federal corporate tax rate from 35% to 21% effective January 1, 2018. Management has evaluated the relevant provisions of the Tax Act to the Company and accounted for the federal and state impacts in the financial statements as of September 30, 2018 and have therefore finalized the accounting for the tax effects of the Tax Act.

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


	2018		2017
	(in thousands)
Deferred income tax assets:
Allowance for doubtful accounts	$	224	$	515
Accrued expenses	3,179		6,550
Stock-based compensation	92		156
Insurance accruals	15,415		18,225
State net operating loss carryforward	—		237
Indirect tax benefits of unrecognized tax benefits	963		1,278
Other	2		—
Total gross deferred tax assets	19,875		26,961
Less valuation allowance	—		—
Net deferred tax assets	19,875		26,961
Deferred income tax liabilities:
Property and equipment	(74,794)		(81,322)
Goodwill	(10,319)		(7,984)
Prepaid expenses	(1,268)		(1,406)
	(86,381)		(90,712)
Net deferred tax liability	$	(66,506)	$	(63,751)

The deferred tax amounts above have been classified in the accompanying consolidated balance sheets at December 31, 2018 and 2017 as follows:


	2018		2017
	(in thousands)
Noncurrent assets, net	$	4,535	$	1,737
Long-term liabilities, net	(71,041)		(65,488)
	$	(66,506)	$	(63,751)

We have not recorded a valuation allowance against any deferred tax assets at December 31, 2018 and 2017. 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:


	2018		2017		2016
	(in thousands)
Current income taxes:
Federal	$	11,985	$	17,997	$	34,664
State	4,498		(1,495)		454
	16,483		16,502		35,118
Deferred income taxes:
Federal	5,537		(28,020)		(5,291)
State	(2,780)		843		(164)
	2,757		(27,177)		(5,455)
Total	$	19,240	$	(10,675)	$	29,663

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


	2018		2017		2016
	(in thousands)
Federal tax at statutory rate (21%, 35%, 35% respectively)	$	19,302	$	22,574	$	30,117
State taxes, net of federal benefit	2,200		178		1,135
Permanent differences to return	408		309		(23)
Return to provision adjustment	(1,327)		(325)		(362)
Uncertain income tax penalties and interest, net	(1,067)		(1,208)		(1,473)
Enacted federal tax rate change	—		(32,789)		—
Other	(276)		586		269
	$	19,240	$	(10,675)	$	29,663

At December 31, 2018 and December 31, 2017, we had a total of $4.6 million and $5.8 million in gross unrecognized tax benefits, respectively, included in long-term income taxes payable in the consolidated balance sheets. Of this amount, $3.6 million and $4.8 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate as of December 31, 2018 and December 31, 2017, respectively. Unrecognized tax benefits were a net decrease of $1.3 million and $2.9 million during the years ended December 31, 2018 and 2017, 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 $1.0 million and $2.3 million at December 31, 2018 and December 31, 2017, 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, 2018, 2017 and 2016 was a benefit of approximately $1.4 million, $0.9 million, and $1.5 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, 2018, 2017 and 2016 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:


	2018		2017
	(in thousands)
Balance at January 1,	$	5,839	$	8,751
Additions based on tax positions related to current year	700		135
Reductions for tax positions of prior years	—		(331)
Reductions due to lapse of applicable statute of limitations	(1,954)		(2,699)
Settlements	—		(17)
Balance at December 31,	$	4,585	$	5,839

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 $0.7 million to an increase of $0.3 million during the next twelve months, due to the combination of expiration of certain statute of limitations and estimated additions. The federal statute of limitations remains open for the years 2015 and forward. Tax years 2008 and forward are subject to audit by state tax authorities depending on the tax code and administrative practice of each state.