Income Taxes

The Tax Cuts and Jobs Act (the "2017 Tax Act") was signed into law on December 22, 2017. The 2017 Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions and introducing new tax regimes. The 2017 Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property. In response to U.S. tax reform, the Staff of the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB No. 118”) to provide guidance to registrants in applying ASC Topic 740 in connection with U.S. tax reform. SAB No. 118 provides that in the period of enactment, the income tax effects of U.S. tax reform may be reported as a provisional amount based on a reasonable estimate (to the extent a reasonable estimate can be determined), which would be subject to adjustment during a “measurement period.” The measurement period begins in the reporting period of the U.S. tax reform’s enactment and ends when a registrant has obtained, prepared and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740. SAB No. 118 also describes supplemental disclosure that should accompany the provisional amounts.

We have not completed our determination of the accounting implications of the 2017 Tax Act on our tax accruals. However, we have reasonably estimated the effects of the 2017 Tax Act and recorded provisional amounts in our financial statements as of December 31, 2017. Due to our operating losses, the 2017 Tax Act did not impact our 2017 operating results or income tax expense. The primary impact of the 2017 Tax Act was the remeasurement of our deferred tax assets, based upon the new U.S. statutory corporate tax rate of 21% and the required change to the related valuation allowance. As we complete our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may make adjustments to the provisional amounts. Those adjustments may materially impact our provision for income taxes in the period in which the adjustments are made.

Empire and all of its subsidiaries file a consolidated income tax return. At December 31, 2017 and 2016, the estimated deferred income tax assets and liability were comprised of the following:




	12/31/2017			12/31/2016
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	40,502		$	57,327
Stock—based compensation	2,097			2,863
Development costs	27,213			26,805
Other	1,396			1,939
Net deferred tax assets	71,208			88,934
Valuation allowance	(71,208		)	(88,934		)
Deferred tax assets, net	$	—		$	—

The valuation allowance decreased approximately $17.7 million during the year ended December 31, 2017, primarily due to the impact of the remeasurement of the net deferred tax assets, based upon the the new U.S. statutory corporate tax rate of 21%, offset by current year activity which increased the net deferred tax assets prior to their remeasurement for the new tax rate. The valuation allowance increased approximately $2.8 million during the year ended December 31, 2016. Of the $155.6 million in net operating loss carryforwards approximately $74.7 million is readily available as of December 31, 2017.

There are limits on the Company’s ability to use its current net operating loss carryforwards, potentially increasing the future tax liability of the Company if it were to generate taxable income. As of December 31, 2017, the Company had net operating loss carryforwards of approximately $155.6 million that expire between 2018 and 2037. The 2004 merger of the Company’s operations with Catskills Development LLC and the investment by Kien Huat in 2009 will limit the amount usable in any year of its net operating losses due to the change in control of the Company within the meaning of the tax laws.

The following is a reconciliation of the federal statutory tax rate to the Company’s effective tax rate:



	Year ended December 31,
	2017		2016		2015
Tax provision at federal statutory tax rate	35.0	%	35.0	%	35.0	%
New York State income taxes, net	—	%	—	%	(0.1	)%
Non-deductible interest	—	%	(0.3	)%	(1.2	)%
Permanent items	(3.1	)%	(3.5	)%	(2.5	)%
Change in valuation allowance	(31.9	)%	(31.2	)%	(31.4	)%
Effective tax rate	—	%	—	%	(0.2	)%

As of December 31, 2017, the Company does not have any uncertain tax positions. As a result, there are no unrecognized tax benefits as of December 31, 2017. If the Company was to incur any interest and penalties in connection with income tax deficiencies, the Company would classify interest within interest expense and classify penalties as selling, general and administrative expenses within the consolidated statement of operations.

The Company files tax returns in the U.S. federal jurisdiction, as well as New York and Delaware. All of its federal and state tax filings as of December 31, 2016 have been timely filed. The Company is subject to U.S. federal or New York State income tax examinations by tax authorities for years after 2013. During the periods open to examination, the Company has net operating loss and tax credit carryforwards that have attributes from closed periods. Since these net operating loss and tax credit carryforwards may be utilized in future periods, they remain subject to examination.