Income Taxes

12 Months Ended

Dec. 31, 2019

8.	Income Taxes

The Company has elected to be taxed as a REIT under the applicable provisions of the Internal Revenue Code with certain of its subsidiaries treated as taxable REIT subsidiary (“TRS”) entities, which are subject to federal and state income taxes.

The following table summarizes the tax status of dividends paid on our common shares:

	Year ended December 31,
(in thousands)	2019			2018			2017
Dividend per share	$	2.34			2.22			2.10
Ordinary income		97	%		98	%		86	%
Capital gain		3	%		—	%		10	%
Return of capital		—	%		—	%		4	%
Qualified dividend income		—	%		2	%		—	%
Section 199A dividend		97	%		98	%		—	%

Our consolidated expense (benefit) for income taxes for the years ended December 31, 2019, 2018, and 2017 was as follows:

	Year ended December 31,
(in thousands)	2019			2018			2017
Income tax expense (benefit):
Current	$	1,576			5,667			1,168
Deferred		(331	)		(5,145	)		(10,815	)
Total income tax expense (benefit) ⁽¹⁾	$	1,245			522			(9,647	)

⁽¹⁾

Includes $757,000, $706,000 and $90,000 of tax expense presented within Other operating expenses during the years ended December 31, 2019, 2018, and 2017, respectively. Additionally, $488,000 and ($184,000) of tax expense (benefit) is presented within Gain on sale of real estate (or Provision for impairment), net of tax, during the years ended December 31, 2019 and 2018, respectively.

The TRS entities are subject to federal and state income taxes and file separate tax returns. Income tax expense (benefit) differed from the amounts computed by applying the U.S. Federal income tax rate to pretax income of the TRS entities, as follows:

	Year ended December 31,
(in thousands)	2019			2018			2017
Computed expected tax expense (benefit)	$	1,587			(584	)		1,190
State income tax, net of federal benefit		650			636			108
Valuation allowance		(91	)		(392	)		(1,512	)
Tax rate change		—			—			(9,737	)
Permanent items		(819	)		1,067			—
All other items		(82	)		(205	)		304
Total income tax expense (benefit) ⁽¹⁾		1,245			522			(9,647	)
Income tax expense (benefit) attributable to operations ⁽¹⁾	$	1,245			522			(9,647	)

⁽¹⁾

Includes $757,000, $706,000, and $90,000 of tax expense presented within Other operating expenses during the years ended December 31, 2019, 2018, and 2017, respectively. Additionally, $488,000 and ($184,000) of tax expense (benefit) is presented within Gain on sale of real estate (or Provision for impairment), net of tax, during the years ended December 31, 2019 and 2018, respectively.

The tax effects of temporary differences (included in Accounts payable and other liabilities in the accompanying Consolidated Balance Sheets) are summarized as follows:

	December 31,
(in thousands)	2019			2018
Deferred tax assets
Provision for impairment	$	—			3,785
Deferred interest expense		1,341			2,617
Capitalized costs under Section 263A		—			713
Net operating loss carryforward		106			166
Other		88			2,123
Deferred tax assets		1,535			9,404
Valuation allowance		(680	)		(7,907	)
Deferred tax assets, net	$	855			1,497
Deferred tax liabilities
Straight line rent	$	(100	)		(565	)
Fixed assets		(14,404	)		(14,829	)
Deferred tax liabilities		(14,504	)		(15,394	)
Net deferred tax liabilities	$	(13,649	)		(13,897	)

The net deferred tax liability decreased during 2019 primarily due to the depreciation of property at TRS entities. Also, during 2019, the Company converted one of its TRS entities to a REIT which resulted in the reversal of that entities’ deferred tax assets, liabilities, and valuation allowance. The Company believes it is more likely than not that a portion of the remaining deferred tax assets, which primarily consist of net operating losses and deferred interest expense, will not be realized unless tax planning strategies are implemented.