Income Taxes

12 Months Ended

Dec. 31, 2019

As of December 31, 2019, we had approximately $1.4 billion in net operating loss carryforwards (“NOL carryforwards”); however, we currently have a valuation allowance against this and substantially all of our other deferred tax assets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. For the year ended December 31, 2019, we recorded an income tax benefit of $69.7 million primarily driven by a $64.2 million benefit associated with the partial release of our valuation allowance in connection with the recognition of deferred tax liabilities acquired as part of the Washington Acquisition. Management continues to conclude that we did not meet the “more likely than not” requirement in order to recognize deferred tax assets on the remaining amounts and a valuation allowance has been recorded for substantially all of our net deferred tax assets at December 31, 2019 and 2018.

In connection with our emergence from bankruptcy on August 31, 2012, we experienced an ownership change as defined under Section 382 of the Code. Section 382 generally places a limit on the amount of NOL carryforwards and other tax attributes arising before an ownership change that may be used to offset taxable income after an ownership change. We believe that we have qualified for an exception to the general limitation rules under Code Section 382(l)(5) which provides for substantially less restrictive

limitations on our NOL carryforwards. Our amended and restated certificate of incorporation places restrictions upon the ability of certain equity interest holders to transfer their ownership interest in us. These restrictions are designed to provide us with the maximum assurance that another ownership change does not occur that could adversely impact our NOL carryforwards.

We believe that any adjustment to our uncertain tax positions would not have a material impact on our financial statements given the Company’s deferred tax and corresponding valuation allowance position as of December 31, 2019.

Our net taxable income must be apportioned to various states based upon the income tax laws of the states in which we derive our revenue. Our NOL carryforwards will not always be available to offset taxable income apportioned to the various states. The states from which our refining, retail, and logistics revenues are derived are not the same states in which our NOLs were incurred; therefore, we expect to incur state tax liabilities in connection with our refining, retail, and logistics operations.

The Tax Cuts and Jobs Act enacted in 2017 lowered the Federal corporate tax rate from 35% to 21% and made numerous other tax law changes. GAAP requires companies to recognize the effect of tax law changes in the period of enactment. During 2018, we recorded a benefit for the release of $0.7 million of our valuation allowance to offset future temporary differences associated with the interest expense carryforwards available under the Tax Cuts and Jobs Act. During 2017, as a result of the change in rate, we remeasured our net deferred tax assets and the associated valuation allowance by $207.7 million. In 2017, we also released $0.8 million of valuation allowance related to Alternative Minimum Tax (“AMT”) credit carried forward from prior years that became refundable in connection with the Tax Cuts and Jobs Act.

We will continue to assess the realizability of our deferred tax assets based on consideration of actual operating results. If sufficient positive evidence of improving actual operating results becomes available, the amount of the deferred tax asset considered more likely than not to be recognized would be increased with a corresponding reduction in income tax expense in the period recorded.

Income tax expense (benefit) consisted of the following (in thousands):



	Year Ended December 31,
	2019			2018			2017
Current:
U.S.—Federal	$	(3,203	)	$	(328	)	$	—
U.S.—State	400			—			2
Deferred:
U.S.—Federal	(58,461		)	426			(1,321		)
U.S.—State	(8,425		)	235			—
Total	$	(69,689	)	$	333		$	(1,319	)

Income tax expense was different from the amounts computed by applying U.S. Federal income tax rate to pretax income as a result of the following:



	Year Ended December 31,
	2019		2018		2017
Federal statutory rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal benefit	(1.1	)%	0.6	%	—	%
Change in valuation allowance related to current activity	227.1	%	(21.3	)%	(30.1	)%
Change in valuation allowance related to change in tax rate	—	%	—	%	(291.2	)%
Change in tax rate	—	%	—	%	291.2	%
Permanent items	(4.3	)%	1.3	%	1.1	%
Provision to return adjustments and other	(1.4	)%	(0.8	)%	(7.9	)%
Actual income tax rate	241.3	%	0.8	%	(1.9	)%

Deferred tax assets (liabilities) are comprised of the following (in thousands):



	December 31,
	2019			2018
Deferred tax assets:
Net operating loss	$	373,717		$	396,033
Property, plant, and equipment	—			8,323
Intangible assets	—			444
Other	19,560			17,886
Total deferred tax assets	393,277			422,686
Valuation allowance	(330,251		)	(394,196		)
Net deferred tax assets	63,026			28,490
Deferred tax liabilities:
Inventory	5,738			—
Property and equipment	64,281			—
Investment in Laramie Energy	11,609			26,981
Convertible notes	2,285			2,658
Intangible assets	750			—
Other	4,904			496
Total deferred tax liabilities	89,567			30,135
Total deferred tax liability, net	$	(26,541	)	$	(1,645	)

We have NOL carryforwards as of December 31, 2019 of $1.4 billion for federal income tax purposes. If not utilized, the NOL carryforwards will expire during 2027 through 2036. We also have AMT Credit Carryovers of $0.8 million which are refundable under the U.S. tax reform legislation effective in tax year 2019.