Income and Partnership Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income and Partnership Taxes

Income and Partnership Taxes:

Federal and state tax legislation in 1997 provided a permanent income tax exemption to existing publicly traded partnerships (PTP), such as Cedar Fair, L.P., with a PTP tax levied on partnership gross income (net revenues less cost of food, merchandise and games) beginning in 1998. In addition, income taxes are recognized for the amount of income taxes payable by Cedar Fair, L.P. and its corporate subsidiaries for the current year and for the impact of deferred tax assets and liabilities that represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. As such, the "(Benefit) provision for taxes" includes amounts for both the PTP tax and for federal, state, local and foreign income taxes.

The 2020 tax benefit totaled $137.9 million, which consisted of a $2.5 million provision for the PTP tax and a $140.4 million benefit for income taxes. This compared with the 2019 tax provision of $42.8 million, which consisted of a $12.1 million provision for the PTP tax and a $30.7 million provision for income taxes, and the 2018 tax provision of $34.7 million, which consisted of an $11.6 million provision for the PTP tax and a $23.1 million provision for income taxes. The calculation of the tax (benefit) provision involves significant estimates and assumptions. Actual results could differ from those estimates.

Significant components of (loss) income before taxes for the years ended December 31, 2020, 2019 and 2018 were as follows:

(In thousands)	2020		2019		2018
Domestic	$	(675,746)	$	167,510	$	185,749
Foreign	(52,412)		47,644		(24,353)
Total (loss) income before taxes	$	(728,158)	$	215,154	$	161,396

The (benefit) provision for income taxes was comprised of the following for the years ended December 31, 2020, 2019 and 2018:

(In thousands)	2020		2019		2018
Current federal	$	(61,726)	$	22,745	$	2,682
Current state and local	(3,747)		6,261		4,901
Current foreign	(32,987)		5,759		4,301
Total current	(98,460)		34,765		11,884
Deferred federal, state and local	(43,220)		(5,953)		15,525
Deferred foreign	1,287		1,847		(4,266)
Total deferred	(41,933)		(4,106)		11,259
Total (benefit) provision for income taxes	$	(140,393)	$	30,659	$	23,143

The (benefit) provision for income taxes for the corporate subsidiaries differed from the amount computed by applying the U.S. federal statutory income tax rate of 21% to (loss) income before taxes. The sources and tax effects of the differences were as follows:    

(In thousands)	2020		2019		2018
Income tax provision based on the U.S. federal statutory tax rate	$	(152,913)	$	45,182	$	33,893
Partnership (income) loss not subject to corporate income tax	47,631		(14,031)		(16,403)
State and local taxes, net	(20,594)		4,906		5,278
Valuation allowance	3,150		196		2,321
Expired foreign tax credits	2,253		—		—
Tax credits	(426)		(1,026)		(1,300)
Change in U.S. tax law	(17,983)		111		(8,730)
Foreign currency translation (gains) losses	(1,455)		(4,707)		7,949
Nondeductible expenses and other	(56)		28		135
Total (benefit) provision for income taxes	$	(140,393)	$	30,659	$	23,143

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of deferred tax assets and liabilities as of December 31, 2020 and December 31, 2019 were as follows:    

(In thousands)	2020		2019
Deferred tax assets:
Compensation	$	5,800	$	9,817
Accrued expenses	5,408		3,864
Foreign tax credits	8,765		7,439
Tax attribute carryforwards	13,224		2,101
Derivatives	9,771		5,141
Foreign currency	5,318		6,230
Deferred revenue	10,012		2,402
Deferred tax assets	58,298		36,994
Valuation allowance	(9,755)		(6,606)
Net deferred tax assets	48,543		30,388
Deferred tax liabilities:
Property	(68,256)		(95,087)
Intangibles	(19,882)		(17,347)
Deferred tax liabilities	(88,138)		(112,434)
Net deferred tax liability	$	(39,595)	$	(82,046)

We record a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The need for this allowance is based on several factors including the carryforward periods for net operating losses and tax credits, prior experience of tax credit limitations, and management's long-term estimates of domestic and foreign source income.

As of December 31, 2020, we had $13.2 million of tax attribute carryforwards consisting of $13.0 million for the tax effect of state net operating loss carryforwards and $0.2 million of federal employment tax credits. The unused state net operating loss carryforwards will expire from 2025 to 2040. We do not expect to fully realize all of these tax attribute carryforwards. As such, we recorded an $8.2 million valuation allowance relating to the tax effect of state net operating loss carryforwards as of December 31, 2020. We also recorded a $1.6 million valuation allowance related to an $8.8 million deferred tax asset for foreign tax credit carryforwards representing a decrease in the valuation allowance of $5.1 million from 2019, of which $2.3 million of the decrease related to the expiration of foreign tax credits. In total, the valuation allowance increased $3.1 million from 2019 inclusive of both the tax effect of state net operating loss and foreign tax credit carryforwards.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act resulted in various changes to the U.S. tax law, including, among other things, allowing net operating losses arising in tax years 2018 through 2020 to be carried back to the preceding five taxable years and removing the limitation that such losses only offset 80% of taxable income. As a result of these changes, we expect to recognize two benefits. First, we expect to carryback the 2020 losses incurred by our corporate subsidiaries, which will result in the refund of a portion of federal income taxes paid during the carryback period of approximately $55.4 million. Second, as of December 31, 2020, the annual effective tax rate included a net benefit of $18.1 million from carrying back the projected 2020 losses of the corporate subsidiaries. This tax benefit represents an estimated $34.2 million incremental benefit of tax loss carrybacks for periods when the federal income tax rate was greater than the current 21% rate. The estimated $34.2 million benefit was decreased by $16.1 million for a projected valuation allowance on foreign tax credits originally utilized during the carryback period which would be released as a result of the loss carryback but which are not expected to be utilized.

As of December 31, 2020, $55.4 million in tax refunds attributable to the net operating loss in 2020 being carried back to prior years in the United States, and an additional $11.9 million in tax refunds attributable to the net operating loss of our Canadian corporate subsidiary being carried back to prior years in Canada, were recorded within "Current income tax receivable" in the consolidated balance sheet. We anticipate receiving these tax refunds in the fourth quarter of 2021.

On December 27, 2020, the Consolidated Appropriations Act, 2021 (the "Appropriations Act") was signed into law. The Appropriations Act resulted in various changes to U.S. tax law and made technical corrections to the CARES Act. The U.S. tax law changes and technical corrections did not impact the (benefit) provision for income taxes for the year ended December 31, 2020.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act"), was signed into law. The Act included numerous tax law changes, including a reduction in the federal corporate income tax rate from 35% to 21%. As a result of the reduction in the federal corporate income tax rate, we recognized an $8.6 million current income tax benefit for the year ended December 31, 2018. The $8.6 million current income tax benefit for 2018 was attributable to the higher blended rate applied to net losses in the first quarter of 2018. The change in tax rates also required the remeasurement of deferred tax balances that are expected to be realized following enactment using the applicable tax rates. As a result of finalization of the remeasurement of the net deferred

tax liability, an additional $1.3 million deferred tax benefit was realized for the year ended December 31, 2018. In addition, we are applying the final regulations that were enacted during October 2017 which impacts the recognition of foreign currency gains and losses for the purpose of calculating U.S. taxable income. The impact of these regulations, the CARES Act and the Act resulted in a tax benefit of $18.0 million in 2020, a tax charge of $0.1 million in 2019, and a tax benefit of $8.7 million in 2018, respectively.

We have recorded a deferred tax liability of $3.2 million and $2.6 million as of December 31, 2020 and December 31, 2019, respectively, to account for foreign currency translation adjustments in other comprehensive income.

Our unrecognized tax benefits, including accrued interest and penalties, were not material in any year presented. We recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense.

We are subject to taxation in the U.S., Canada and various state and local jurisdictions. Our tax returns are subject to examination by state and federal tax authorities. With few exceptions, we are no longer subject to examination by the major taxing authorities for tax years before 2016.