On December 22, 2017, H.R. 1/Public Law 115-97 which includes tax legislation titled Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. Effective January 1, 2018, the Tax Reform Act reduced the U.S. federal corporate tax rate from 35% to 21%. As a result of the Tax Reform Act, the Company recognized a reduction of net deferred income tax liabilities of $3.8 million in 2018 related to the reversal of temporary differences through the Company’s fiscal tax year end of February 28, 2018. As of December 31, 2018, the accounting for the income tax effect of the Tax Reform Act was complete and all amounts recorded were considered final.

In addition to the effect on net deferred tax liabilities, the Company recorded a reduction in current income tax expense of $0.1 million at December 31, 2018, as a result of the Tax Reform Act, to reflect the Company’s application of a blended rate due to the use of a fiscal year rather than a calendar year for U.S. income tax filing. Because the Company’s fiscal tax year included the effective date of the rate change under the Tax Reform Act, taxes are required to be calculated by applying a blended rate to the taxable income for the tax year ending February 28, 2018. The blended rate is calculated based on the ratio of days in the fiscal tax year prior to and after the effective date of the rate change. In computing total tax expense for the twelve months ended December 31, 2018, a federal blended rate of 32.74% was applied to the two months ended February 28, 2018, and a 21.0% federal statutory rate was applied to the ten months ended December 31, 2018.

The Tax Reform Act made many other changes in the tax law applicable to corporations, including the one-time transition tax on earnings of foreign subsidiaries, the tax on global intangible low-taxed income, and the tax on base erosion payments. At December 31, 2020, the Company has determined these provisions of the Tax Reform Act will not have a significant impact on the Company’s consolidated financial statements.

Additional tax law changes occurred in December 2019 which had an impact on the 2019 tax provision. The nature and effect of these 2019 changes are described in the reconciliation of the effective tax rate and the statutory tax rate below.

Significant components of the provision or benefit for income taxes for the years ended December 31 were as follows:

(1)	For 2018, the income tax provision reflects the impact of the Tax Reform Act, as previously disclosed in this Note.

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. Components of the deferred tax provision or benefit for the years ended December 31, were as follows:


	2020⁽¹⁾		2019⁽¹⁾		2018⁽¹⁾⁽²⁾

	(in thousands)
Amortization, depreciation, and basis differences for property, plant and equipment and other long-lived assets	$	4,975	$	16,255	$	23,153
Amortization of intangibles and impairment		183		(6,933)		(763)
Changes in reserves for workers’ compensation, third-party casualty, and cargo claims		(182)		(1,880)		469
Revenue recognition		(1,481)		(1,437)		(2,524)
Allowance for doubtful accounts		(652)		541		(115)
Nonunion pension and other retirement plans		957		564		(2,810)
Multiemployer pension fund withdrawal⁽³⁾		157		150		(5,818)
Federal and state net operating loss carryforwards utilized (generated)		(259)		59		746
State depreciation adjustments		343		(1,302)		(1,761)
Share-based compensation		(195)		(709)		(529)
Valuation allowance increase (decrease)		617		383		(744)
Other accrued expenses		1,663		(699)		(4,881)
Impact of the Tax Reform Act⁽²⁾		—		—		(3,772)
Prepaid expenses		1,207		1,782		1,313
Operating lease right-of-use assets/liabilities – net⁽⁴⁾		(13)		(1,049)		—
Other		395		(314)		(92)
Deferred tax provision	$	7,715	$	5,411	$	1,872

(1)	The components of the deferred tax provision reflect the statutory U.S. income tax rate in effect for the applicable year, which is a blended rate for 2018 (as previously discussed within this Note), and 21% for 2019 and 2020.

(2)	For 2018, the effect of the change in the U.S. corporate tax rate from 35% to 21% in accordance with the Tax Reform Act is reflected as a separate component of the deferred tax provision.

(3)	ABF Freight recorded a multiemployer pension fund withdrawal liability in 2018 resulting from the transition agreement it entered into with the New England Pension Fund (see Note I).

(4)	Net change in operating lease right-of-use deferred tax assets and liabilities recorded due to the adoption of ASC Topic 842 in 2019.

Significant components of the deferred tax assets and liabilities at December 31 were as follows:


	2020		2019

	(in thousands)
Deferred tax assets:
Accrued expenses	$	40,502	$	41,757
Operating lease liabilities⁽¹⁾		33,933		19,726
Supplemental pension liabilities		103		1,091
Multiemployer pension fund withdrawal⁽²⁾		5,409		5,546
Postretirement liabilities other than pensions		4,871		5,359
Share-based compensation		5,827		5,605
Federal and state net operating loss carryovers		1,353		1,093
Revenue recognition		1,426		—
Other		1,297		1,538
Total deferred tax assets		94,721		81,715
Valuation allowance		(1,284)		(668)
Total deferred tax assets, net of valuation allowance		93,437		81,047

Deferred tax liabilities:
Amortization, depreciation, and basis differences for property, plant and equipment, and other long-lived assets		113,092		107,835
Operating lease right-of-use assets⁽¹⁾		32,923		18,703
Intangibles		7,520		7,373
Revenue recognition		—		669
Prepaid expenses		6,151		4,952
Total deferred tax liabilities		159,686		139,532
Net deferred tax liabilities	$	(66,249)	$	(58,485)

(1)	Operating lease right-of-use assets and liabilities were recorded in 2019 due to the adoption of ASC Topic 842.

(2)	ABF Freight recorded a multiemployer pension fund withdrawal liability in 2018 resulting from the transition agreement it entered into with the New England Pension Fund (see Note I).

Reconciliation between the effective income tax rate, as computed on income before income taxes, and the statutory federal income tax rate for the years ended December 31 is presented in the following table:


	2020⁽¹⁾			2019⁽¹⁾			2018⁽¹⁾

	(in thousands, except percentages)
Income tax provision at the statutory federal rate	$	19,424		$	10,809		$	17,721
Federal income tax effects of:
State income taxes		(1,062)			(637)			(840)
Nondeductible expenses		1,395			1,344			1,682
Life insurance proceeds and changes in cash surrender value		(488)			(775)			7
Alternative fuel credit		(1,261)			(2,340)			(1,203)
Net increase (decrease) in valuation allowances		617			382			(891)
Net increase (decrease) in uncertain tax positions		(933)			(20)			933
Settlement of share-based compensation		420			388			(649)
Impact of the Tax Reform Act on current tax⁽¹⁾		—			—			(52)
Impact of the Tax Reform Act on deferred tax⁽¹⁾		—			—			(3,772)
Nonunion pension termination expense		—			1,040			—
Foreign tax credits generated		(391)			(2,054)			(2,216)
Federal research and development tax credits		(2,078)			(1,354)			—
Other		306			(385)			187
Federal income tax provision		15,949			6,398			10,907
State income tax provision		5,056			3,034			4,001
Foreign income tax provision		391			2,054			2,216
Total provision for income taxes	$	21,396		$	11,486		$	17,124
Effective tax rate		23.1	%		22.3	%		20.3	%

(1) Amounts in this reconciliation reflect the statutory U.S. income tax rate in effect for the applicable year after the enactment of the Tax Reform Act, which is 21%. The effect of applying a blended rate of 32.74% for the two months ended February 28, 2018, in accordance with the Tax Reform Act, is reflected in separate components of the reconciliation.

Income taxes paid, excluding income tax refunds, totaled $28.6 million, $28.1 million, and $21.8 million in 2020, 2019, and 2018, respectively. Income tax refunds totaled $13.3 million, $13.1 million, and $18.5 million in 2020, 2019, and 2018, respectively.

Under ASC Topic 718, Compensation – Stock Compensation, the Company may experience volatility in its income tax provision as a result of recording all excess tax benefits and tax deficiencies in the income statement upon settlement of awards, which occurs primarily during the second quarter of each year, except for 2018 when it predominantly occurred in the fourth quarter. The 2020 and 2019 tax rates reflect tax expense of 0.5% and 0.9%, respectively, and the 2018 rate reflects a benefit of 0.8% for settlement of stock awards. The tax benefit of dividends on share-based payment awards was less than $0.1 million for each of the years 2020, 2019, and 2018.

At December 31, 2020, the Company had gross federal net operating loss carryforwards of $1.3 million. The use of these net operating loss carryforwards is limited by Section 382 of the Internal Revenue Code (“IRC”). Of the total amount, $1.0 million will expire if not used within five years; however, it is not expected that the Section 382 limitation will result in the expiration of these net operating loss carryforwards prior to their availability under Section 382. The remaining $0.3 million will expire in 10 years if not used. Due to taxable losses for three prior tax years for the business to which this amount relates, a valuation allowance of $0.1 million for these federal net operating losses was established at December 31, 2020.

At December 31, 2020, the Company had total gross state net operating losses of $18.4 million. Gross state net operating losses of $5.3 million are from the acquisition of Panther and relate to periods ending on or prior to June 15, 2012. State carryforward periods for the remaining Panther net operating losses vary from 10 to 20 years. Gross state net operating losses of $11.6 million are for subsidiaries that have had taxable losses for three prior tax years or have other nexus issues that reduce the likelihood of the utilization of the losses. A valuation allowance of $0.6 million was established for these state net operating losses at December 31, 2020. Also due to three-year taxable losses and nexus issues, state tax credit carryforwards of $0.2 million were fully reserved by a valuation allowance of $0.2 million at December 31, 2020. The unused state tax credits have a carryforward period of 20 years.

As the Canadian tax rate is now higher than the U.S. tax rate, it is unlikely that foreign tax credit carryforwards will be useable, as U.S. taxes paid will be at a lower rate than the tax rates in Canada. Thus, the foreign tax credit carryover is fully reserved, resulting in valuation allowances of $0.4 million and $0.7 million at December 31, 2020 and 2019, respectively.

Consolidated federal income tax returns filed for tax years through 2016 are closed by the applicable statute of limitations. The Company is under examination by one state taxing authority at December 31, 2020. The Company is not under examination by foreign taxing authorities at December 31, 2020.

At December 31, 2019 and 2018, the Company had reserves for uncertain tax positions of $0.9 million and $1.0 million, respectively. These reserves related to credits taken on federal returns and were fully removed upon the expiration of the statute of limitations in the first quarter of 2020 and the fourth quarter of 2019, respectively. No reserve for uncertain tax positions remained at December 31, 2020.

For 2020, 2019, and 2018, interest paid or accrued related to foreign and state income taxes was immaterial.