|9 Months Ended|
Sep. 30, 2018
|Income Tax Disclosure [Abstract]|
The effective income tax rate, which is the provision for income taxes as a percentage of income before provision for income taxes, was 11.3% and 34.7% for the three months ended September 30, 2018 and 2017, respectively, and 22.7% and 30.8% for the nine months ended September 30, 2018 and 2017, respectively. The decrease in the effective income tax rate for the three and nine months ended September 30, 2018 is largely driven by the 2018 income tax rate reduction as well as additional re-measurement of deferred taxes recorded during the quarter resulting from changes in methods of tax accounting reflected in our 2017 federal income tax return. The effective income tax rates for the nine months ended September 30, 2018 and 2017 also differed from the U.S. Federal statutory rate of 21% and 35%, respectively, due to state income taxes, stock compensation, utilization of tax credits, and the domestic manufacturing deduction in 2017.
On December 22, 2017, the Tax Act was signed into law. The Tax Act made broad and complex changes to the U.S. tax code which include: a lowering of the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, accelerated expensing of qualified capital investments for a specific period, and a transition from a worldwide to a territorial tax system which will require companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries that is payable over eight years.
The Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.
Deemed Repatriation Transition Tax: The deemed repatriation transition tax (the “Transition Tax”) is a tax on certain previously untaxed accumulated and current earnings and profits (“E&P”) of our foreign subsidiaries. We were able to reasonably estimate the Transition Tax and recorded a provisional Transition Tax obligation of $1.0 million, net of foreign tax credits, for the year ended December 31, 2017. On the basis of revised foreign tax credits and E&P computations that were completed during the reporting period, we recognized an additional measurement-period adjustment of $0.1 million to income tax expense during the period. The Transition Tax, which has now been determined to be complete, resulted in recording a total Transition Tax obligation of $1.1 million.
Re-measurement of Deferred Taxes: The Act reduces the corporate tax rate to 21%, effective January 1, 2018. We were able to reasonably estimate a decrease to our deferred tax asset of $7.0 million for the year ended December 31, 2017. On the basis of tax accounting method changes made with the filing of the 2017 tax return, we recognized an additional measurement-period adjustment of $(2.0) million during the period. The Re-measurement of Deferred Taxes, which has now been determined to be complete, resulted in recording a decrease to our deferred tax assets of $5.0 million.
Uncertain Tax Positions: The Company must assess whether any Uncertain Tax Positions should be recorded as a result of the Tax Act. The Company has completed this assessment and did not record any Uncertain Tax Positions as a result of the Tax Act.
Our accounting for the Tax Act is still ongoing for items related to our reassessment of permanently reinvested earnings, valuation allowances, and certain compensation amounts. We have not made any additional measurement-period adjustments related to these items during the nine months ended September 30, 2018. We continue to gather additional information related to the above items and we anticipate additional IRS guidance relative to the impacts of the Tax Act will be forthcoming throughout 2018.
As of both September 30, 2018 and December 31, 2017, we had $25.2 million of unrecognized tax benefits, of which $8.5 million would impact the effective tax rate, if recognized. Estimated interest and penalties related to the underpayment of income taxes are classified as a component of the provision for income taxes in the accompanying consolidated statements of operations. Accrued interest and penalties as of September 30, 2018 and December 31, 2017 were $2.2 million and $2.1 million, respectively. Our liability for uncertain tax positions, including accrued interest and penalties, of $27.4 million and $27.3 million at September 30, 2018 and December 31, 2017, respectively, are presented in other noncurrent liabilities in the accompanying consolidated balance sheets.
Our U.S. federal returns for the period ended December 31, 2015 and all subsequent periods remain open for audit. In addition, the majority of state returns for the period ended December 31, 2014 and all subsequent periods remain open for audit.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef