Income Taxes

12 Months Ended

Dec. 31, 2019

On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was enacted into law. TCJA changed several aspects of US federal tax law including reducing the US corporate income tax rate from 35.0% to 21.0% beginning on January 1, 2018. The Company's analysis and decisions on accounting for TCJA are complete.

Income before income taxes was taxed under the following jurisdictions:



	Year Ended December 31,
	2019		2018		2017
Domestic	$	854.1	$	762.3	$	608.3
Foreign	95.6		78.2		52.4
Total	$	949.7	$	840.5	$	660.7

Components of Income tax expense (benefit) consist of the following:



	Year Ended December 31,
	2019			2018			2017
Current:
Federal	$	224.7		$	192.6		$	258.9
State	56.1			43.3			29.8
Foreign	20.0			17.7			21.3
Total current	300.8			253.6			310.0
Deferred:
Domestic	(83.0		)	(52.7		)	(167.6		)
Foreign	(4.9		)	(3.4		)	(4.8		)
Total deferred	(87.9		)	(56.1		)	(172.4		)
Income tax expense	$	212.9		$	197.5		$	137.6

The reconciliation between the statutory tax rate expressed as a percentage of income before income taxes and the effective tax rate was as follows:



	Year Ended December 31,
	2019					2018					2017
Statutory federal income tax rate	$	199.4		21.0	%	$	176.5		21.0	%	$	231.1		35.0	%
State taxes, net of federal effect	35.4			3.7		31.1			3.7		18.3			2.8
Excess tax benefit of equity awards	(26.8		)	(2.8	)	(19.7		)	(2.3	)	(36.2		)	(5.5	)
Effect of rates different than statutory	0.8			0.1		0.6			0.1		(6.3		)	(1.0	)
Tax on foreign earnings	2.1			0.2		2.8			0.3		1.0			0.1
Effect of TCJA on deferred taxes and repatriation tax	—			—		(1.9		)	(0.2	)	(75.5		)	(11.4	)
Other	2.0			0.2		8.1			0.9		5.2			0.8
Effective tax rate	$	212.9		22.4	%	$	197.5		23.5	%	$	137.6		20.8	%

The tax effect of temporary differences that give rise to net deferred income tax liabilities is presented below:



	December 31,
	2019		2018
Deferred tax assets:
Contract liabilities	$	40.7	$	—
Equity compensation plans	21.1		17.7
Net operating loss and credit carryforwards, net	20.1		23.8
Payroll and benefits	9.6		9.3
Rent	7.3		7.5
Accounts receivable	7.0		6.5
Other	14.1		10.0
Total deferred tax assets	119.9		74.8

Deferred tax liabilities:
Acquisition-related intangibles	112.2		148.6
Property and equipment	27.0		20.0
International investments	19.2		19.2
Other	3.3		11.7
Total deferred tax liabilities	161.7		199.5
Deferred tax asset valuation allowance	16.8		17.2
Net deferred tax liabilities	$	58.6	$	141.9

The Company has international income tax net operating losses of $6 million that do not expire and state and international tax credit carryforwards of $20 million, which expire at various dates from 2021 through 2027.

Due to the nature of the CDW UK acquisition, the Company has provided US income taxes of $19 million on the excess of the financial reporting value of the investment over the corresponding tax basis. The Company is indefinitely reinvested in its UK business, and therefore will not provide for any US deferred taxes on the earnings of the UK business. The Company is not permanently reinvested in its Canadian business and therefore has recognized deferred tax liabilities of $1 million as of December 31, 2019 related to Canada withholding taxes on earnings of its Canadian business.

In the ordinary course of business, the Company is subject to review by domestic and foreign taxing authorities, including the Internal Revenue Service ("IRS"). In general, the Company is no longer subject to audit by the IRS or state, local, or foreign taxing authorities for tax years through 2014. Various taxing authorities are in the process of auditing income tax returns of the Company and its subsidiaries. The Company does not anticipate that any adjustments from the audits would have a material impact on its Consolidated Financial Statements.

Changes in the Company's unrecognized tax benefits as of December 31, 2019, 2018 and 2017 were as follows:



	Year Ended December 31,
	2019		2018		2017
Balance as of January 1	$	15.1	$	—	$	—
Additions for tax positions related to current year	2.6		15.1		—
Balance as of December 31	$	17.7	$	15.1	$	—

As of December 31, 2019, the Company had $18 million of unrecognized tax benefits that, if recognized, would have decreased income taxes and the corresponding effective income tax rate and increased net income. The impact of recognizing these tax benefits, net of the federal income tax benefit related to unrecognized state income tax benefits, would be approximately $14 million.