Income Taxes

12 Months Ended

Dec. 31, 2019

In December 2017, the Tax Cuts and Jobs Act (the Act) enactment significantly changed U.S. tax law. As of December 31, 2017, we had not completed our accounting for the tax effects of the Act. In accordance with SAB 118, we recorded provisional amounts related to the transition tax, impacts of the Act on state taxes, provisions of the Act related to deferred tax balances, and foreign tax implications. As a result of the Act, we recorded a provisional tax benefit of $12.0 million in the fourth quarter of 2017, which primarily reflected the re-measurement of our net deferred tax liability to the new U.S. Federal tax rate. As of December 31, 2018, we resolved our contingent accounting related to the tax effects of the Act. We filed our federal income tax return in the third quarter of 2018, and our return to provision adjustment, which addressed the provisional tax benefit recorded under SAB 118 and was not material.

We reduce federal and state income taxes payable by the tax benefits associated with the exercise of deductible nonqualified stock options and the lapse of restrictions on deductible restricted stock awards. To the extent realized tax deductions exceed the amount of previously recognized deferred tax benefits related to share-based compensation, we record an excess tax benefit. We record all excess tax benefits or deficiencies as income tax benefit or expense in the income statement. We recorded excess tax benefits of $23.5 million to our income tax provision in 2019, $15.3 million in 2018 and $12.6 million in 2017.

Income before income taxes and equity earnings is attributable to the following jurisdictions (in thousands):


	Year Ended December 31,
	2019		2018		2017
United States	$	304,259	$	278,311	$	259,436
Foreign	13,215		14,682		9,746
Total	$	317,474	$	292,993	$	269,182

The provision for income taxes consisted of the following (in thousands):


	Year Ended December 31,
	2019		2018		2017
Current:
Federal	$	35,270	$	39,504	$	71,329
State and other	17,168		14,609		11,289
Total current provision for income taxes	52,438		54,113		82,618

Deferred:
Federal	4,154		4,676		(6,643)
State and other	(431)		(15)		2,007
Total deferred provision for income taxes	3,723		4,661		(4,636)
Provision for income taxes	$	56,161	$	58,774	$	77,982

A reconciliation of the U.S. federal statutory tax rate to our effective tax rate on Income before income taxes and equity earnings is as follows:


	Year Ended December 31,
	2019		2018		2017
Federal statutory rate	21.00	%	21.00	%	35.00	%
Change in valuation allowance	0.10		(0.13)		(0.06)
Stock-based compensation	(7.40)		(5.23)		(4.67)
Re-measurement of net deferred tax liability	—		—		(4.46)
Other, primarily state income tax rate	3.99		4.42		3.16
Total effective tax rate	17.69	%	20.06	%	28.97	%

The table below presents the components of our deferred tax assets and liabilities (in thousands):


	December 31,
	2019		2018
Deferred tax assets:








Product inventories	$	5,740	$	5,413
Accrued expenses	927		776

Leases	42,698		1,189
Share-based compensation	9,245		9,427
Uncertain tax positions	2,852		2,558
Net operating losses	4,807		5,058
Interest rate swaps	66		—

Other	2,889		2,080
Total non-current	69,224		26,501
Less: Valuation allowance	(4,794)		(5,058)
Component reclassified for net presentation	(63,699)		(20,897)
Total non-current, net	731		546

Total deferred tax assets	731		546

Deferred tax liabilities:






Trade discounts on purchases	2,326		2,094
Prepaid expenses	2,821		1,804
Leases	41,418		—
Intangible assets, primarily goodwill	32,331		30,988
Depreciation	17,401		14,924
Interest rate swaps	—		486
Total non-current	96,297		50,296
Component reclassified for net presentation	(63,699)		(20,897)
Total non-current, net	32,598		29,399

Total deferred tax liabilities	32,598		29,399

Net deferred tax liability	$	31,867	$	28,853

At December 31, 2019, certain of our international subsidiaries had tax loss carryforwards totaling approximately $17.7 million, which expire in various years after 2020. Deferred tax assets related to the tax loss carryforwards of these international subsidiaries were $4.8 million as of December 31, 2019 and $5.1 million as of December 31, 2018. We have recorded a corresponding valuation allowance of $4.6 million and $5.1 million in the respective years.

As of December 31, 2019, United States income taxes were not provided on earnings or cash balances of our foreign subsidiaries, outside of the provisions of the transition tax from U.S. tax reform. As we have historically invested or expect to invest the undistributed earnings indefinitely to fund current cash flow needs in the countries where held, additional income tax provisions may be required. Determining the amount of unrecognized deferred tax liability on these undistributed earnings and cash balances is not practicable due to the complexity of tax laws and regulations and the varying circumstances, tax treatments and timing of any future repatriation.

The following table summarizes the activity related to uncertain tax positions for the past three years (in thousands):


	2019		2018		2017
Balance at beginning of year	$	12,179	$	9,937	$	7,846
Increases for tax positions taken during a prior period	771		76		129
Increases for tax positions taken during the current period	2,354		3,809		3,260
Decreases resulting from the expiration of the statute of limitations	1,390		1,603		869
Decreases relating to settlements	332		40		429
Balance at end of year	$	13,582	$	12,179	$	9,937

The total amount of unrecognized tax benefits that, if recognized, would decrease the effective tax rate was $10.7 million at December 31, 2019 and $9.6 million at December 31, 2018.

We record interest expense related to unrecognized tax benefits in Interest and other non-operating expenses, net, while we record related penalties in Selling and administrative expenses on our Consolidated Statements of Income. For unrecognized tax benefits, we had interest expense of $0.6 million in 2019, $0.2 million in 2018 and $0.2 million in 2017. Accrued interest related to unrecognized tax benefits was approximately $1.7 million at December 31, 2019 and $1.1 million at December 31, 2018.

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2016.