Federal and State Income Taxes

12 Months Ended

Dec. 31, 2018

NOTE 10. FEDERAL AND STATE INCOME TAXES

Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management's best estimate of current and future taxes to be paid. We are subject to income taxes in the United States and numerous state jurisdictions. Significant judgments and estimates are required in the determination of the consolidated income tax expense.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.

Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):


	Year Ended December 31,
Deferred tax assets:	2018		2017
Accrued expenses not deductible until paid	$	7,017	$	6,062
Goodwill and intangible assets	1,353		—
Equity incentive plan	286		178
Net operating loss carry forwards	245		496
Allowance for doubtful accounts	207		246
Revenue recognition	118		110
Other	11		124
Total deferred tax assets	$	9,237	7,216

Deferred tax liabilities:
Tax over book depreciation	$	(31,009)	$	(26,806)
Prepaid expenses deductible when paid	(1,654)		(1,514)
Capital leases	(92)		(32)
Total deferred tax liabilities	(32,755)		(28,352)
Net deferred tax liabilities	$	(23,518)	$	(21,136)

The Company has certain state net operating loss carryovers that expire in varying years through 2036. The Company expects to fully utilize its tax attributes in future years before they expire.

Significant components of the provision (benefit) for income taxes are as follows (in thousands):


	Year Ended December 31,
Current:	2018		2017		2016
Federal	$	1,263	$	2,689	$	(3,420)
State	729		190		(44)
Total current	1,992		2,879		(3,464)
Deferred:
Federal	2,375		(16,812)		439
State	7		173		(494)
Total deferred	2,382		(16,639)		(55)
Total income tax expense (benefit)	$	4,374	$	(13,760)	$	(3,519)

A reconciliation between the effective income tax rate and the statutory federal income tax rate of 21% for 2018 and 35% for 2016 and 2017 is as follows (in thousands):


	Year Ended December 31,
	2018			2017			2016
Income tax expense (benefit) at statutory federal rate	$	3,481		$	(2,190)		$	(3,926)
Federal income tax effects of:
State income tax (benefit) expense	(155)			76			188
Per diem and other nondeductible meals and entertainment	329			578			614
Impact of Tax Cuts and Jobs Act	—			(12,010)			—
Other	(19)			—			143
Federal income tax expense (benefit)	3,636			(13,546)			(2,981)
State income tax expense (benefit)	738			(214)			(538)
Total income tax expense (benefit)	$	4,374		$	(13,760)		$	(3,519)

Effective tax rate	26.4		%	219.9		%	31.4		%

On December 22, 2017, the U.S. Government enacted the Tax Cuts and Jobs Act of 2017, which, among other things, reduces the federal corporate income tax rate from 35% to 21% effective January 1, 2018. As the result of our initial analysis in 2017 of the impact of the Tax Cuts and Jobs Act under SAB 118, we recorded a provisional amount of net tax benefit of $12.0 million primarily related to the remeasurement of our deferred tax balances. We completed our accounting for the income tax effects of the Tax Cuts and Jobs Act in 2018, and no material adjustments were required to the provisional amounts initially recorded.

In 2017, our effective rate varied from the federal statutory rate primarily due to the Tax Cuts and Jobs Act being signed into law resulting in the recognition of an estimated $12.0 million tax benefit from the adjustment in measurement of our net deferred tax liability. In 2018 and prior to 2017, the effective rates varied from the statutory federal tax rate primarily due to state income taxes and certain non-deductible expenses including a per diem pay structure for our drivers. Due to the partially nondeductible effect of per diem pay, the Company's tax rate will change based on fluctuations in earnings (losses) and in the number of drivers who elect to receive this pay structure. Generally, as pretax income or loss increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pretax income or loss, while in periods where earnings are at or near breakeven the impact of the per diem program on our effective tax rate can be significant.