Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) was enacted which, among other things, reduced the U.S. federal income tax rate from 35% to 21% in 2018, instituted a dividends received deduction for foreign earnings with a related tax for the deemed repatriation of unremitted foreign earnings in 2017, and created a new U.S. minimum tax on earnings of foreign subsidiaries. The Tax Act also allowed for 100% bonus depreciation for assets purchased after September 27, 2017, until December 31, 2023. We recognized an income tax benefit of $76.5 million in the year ended December 31, 2017, associated with the revaluation of the net deferred tax liability at the date of enactment. Our provisional estimate of the one-time transition tax resulted in $0.7 million of additional tax expense. We also recorded a federal provisional benefit of $9.7 million based on our intent to fully expense all qualifying expenditures. In 2018, we finalized our analysis over the one-year measurement period that ended on December 22, 2018, in accordance with SAB 118, resulting in an immaterial income tax benefit recorded in our consolidated statement of operations.

For financial statement purposes, income (loss) before income taxes by source was comprised of the following:



	Year Ended December 31,
(In thousands)	2019		2018		2017
Domestic	$	212,406	$	11,290	$	(109,615	)
Foreign	11,377		2,551		(585		)
Earnings (loss) before income taxes	$	223,783	$	13,841	$	(110,200	)

A reconciliation of the federal statutory rate of 21% for 2019 and 2018 and 35% for 2017 to actual follows:



	Year Ended December 31,
	2019		2018		2017
Tax at statutory rate	21.0	%	21.0	%	35.0	%
Tax Cuts and Jobs Act of 2017	—	%	—	%	70.3	%
State income taxes	4.3	%	17.6	%	(1.8	)%
Effect of foreign operations, net of foreign tax credits	0.3	%	(1.2	)%	3.5	%
Effect of current and prior year credits	(2.7	)%	(31.4	)%	1.7	%
Change in unrecognized tax benefits	—	%	10.9	%	—	%
Other permanent differences	0.2	%	14.9	%	—	%
Prior year return to provision adjustments	(2.7	)%	7.3	%	—	%
Adjustments to deferred taxes	—	%	—	%	1.6	%
Valuation allowance	1.2	%	(0.5	)%	(1.6	)%
Other, net	0.8	%	—	%	(2.7	)%
Effective income tax rate	22.4	%	38.6	%	106.0	%

The components of income tax expense (benefit) are as follows:



	Year Ended December 31,
(In thousands)	2019			2018			2017
Current expense (benefit)
Federal	$	(6,996	)	$	(2,573	)	$	(34,445	)
State	528			816			1,216
Foreign	796			724			(1,417		)
Total current	(5,672		)	(1,033		)	(34,646		)
Deferred expense (benefit)
Federal	37,309			4,691			(89,820		)
State	16,439			3,325			9,266
Foreign	2,161			(1,634		)	(1,653		)
Total deferred	55,909			6,382			(82,207		)
Total income tax expense (benefit)	$	50,237		$	5,349		$	(116,853	)

Deferred tax assets (liabilities) consist of the following:



	December 31,
(In thousands)	2019			2018
Deferred tax assets
Net operating loss carryforwards	$	34,928		$	56,701
Accrued liabilities	45,671			50,558
Intangible assets	13,088			20,346
Lease obligations	71,104			—
Other assets including credits	10,915			23,070
Foreign tax credit carryforwards	7,815			6,601
Total deferred tax assets	183,521			157,276
Valuation allowance	(43,555		)	(39,961		)
Deferred tax assets, net	139,966			117,315
Deferred tax liabilities
Rental merchandise	(193,878		)	(177,794		)
Property assets	(24,513		)	(32,571		)
Lease assets	(69,035		)	—
Other liabilities	(1,635		)	(453		)
Total deferred tax liabilities	(289,061		)	(210,818		)
Net deferred taxes	$	(149,095	)	$	(93,503	)

At December 31, 2019, we have net operating loss carryforwards of approximately $360.0 million for state and $53.0 million for foreign jurisdictions, partially offset by valuation allowance. We also had federal, state and foreign tax credit carryforwards of approximately $15.9 million of which a portion has been offset by a valuation allowance. The net operating losses and credits will expire in various years between 2020 and 2039.

We file income tax returns in the U.S. and multiple foreign jurisdictions with varying statutes of limitations. In the normal course of business, we are subject to examination by various taxing authorities. We are currently under examination by certain Federal and state revenue authorities for the fiscal years 2013 through 2017. The following is a summary of all tax years that are open to examination.


•	U.S. Federal - 2013 and forward


•	U.S. States - 2013 and forward


•	Foreign - 2013 and forward

We do not anticipate that adjustments as a result of these audits, if any, will have a material impact to our consolidated statement of operations, financial condition, and statement of cash flows or earnings per share.

As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. In 2019, we increased the valuation allowance against net operating losses and credits in multiple state jurisdictions. The valuation allowance related to foreign deferred tax assets was decreased due to utilization of losses in the current year. However, management believes certain foreign losses and deferred tax assets will not be realized and has recorded a valuation allowance related to these assets.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:



	Year Ended December 31,
(In thousands)	2019			2018			2017
Beginning unrecognized tax benefit balance	$	36,364		$	37,319		$	33,723
Reductions based on tax positions related to current year	(654		)	(206		)	(2,280		)
Additions for tax positions of prior years	415			735			6,688
Reductions for tax positions of prior years	(11,917		)	(488		)	(368		)
Settlements	—			(996		)	(444		)
Ending unrecognized tax benefit balance	$	24,208		$	36,364		$	37,319

Included in the balance of unrecognized tax benefits at December 31, 2019, is $5.0 million, net of federal benefit, which, if ultimately recognized, will affect our annual effective tax rate.

During the next twelve months, we anticipate that it is reasonably possible that the amount of unrecognized tax benefits could be reduced by approximately $18.7 million either because our tax position will be sustained upon audit or as a result of the expiration of the statute of limitations for specific jurisdictions.

As of December 31, 2019, we have accrued approximately $3.1 million for the payment of interest for uncertain tax positions and recorded interest expense of approximately $346 thousand for the year then ended, which are excluded from the reconciliation of unrecognized tax benefits presented above. These amounts are net of the reversal of interest expense due to settlement of certain tax positions.

The effect of the tax rate change for items originally recognized in other comprehensive income was properly recorded in tax expense from continuing operations. This results in stranded tax effects in accumulated other comprehensive income at December 31, 2019. Companies can make a policy election to reclassify from accumulated other comprehensive income to retained earnings the stranded tax effects directly arising from the change in the federal corporate tax rate. We did not exercise the option to reclassify stranded tax effects within accumulated other comprehensive income in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act (or portion thereof) is recorded.