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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income tax expense is estimated using the tax rate in effect or to be in effect during the relevant periods in the jurisdictions in which we operate. Deferred income tax assets and liabilities are recognized for temporary differences between the basis of assets and liabilities for financial reporting and tax purposes and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. Changes in tax legislation are included in the relevant computations in the period in which such changes are effective. We review contingent tax liabilities for estimated exposures on a more likely than not standard related to our current tax positions. Pursuant to FASB guidance related to accounting for uncertainty in income taxes, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position and also the past administrative practices and precedents of the taxing authority. As of December 31, 2019 and 2018, we had not recognized any material amounts in connection with uncertainty in income taxes. U.S. Federal and State Taxes As an MLP, we are not subject to U.S. federal income taxes; rather the tax effect of our operations is passed through to our unitholders. Although we are subject to state income taxes in some states, the impact to the years ended December 31, 2019, 2018, and 2017 was immaterial. Canadian Federal and Provincial Taxes All of our Canadian operations are conducted by entities that are treated as corporations for Canadian tax purposes (flow through for U.S. income tax purposes) and that are subject to Canadian federal and provincial taxes. Additionally, payments of interest and dividends from our Canadian entities to other Plains entities are subject to Canadian withholding tax that is treated as income tax expense. Tax Components Components of income tax expense are as follows (in millions):
| Year Ended December 31, |  |  |  |
| 2019 |  | 2018 |  | 2017
Current income tax expense: |  |  |  |  |
State income tax | $ | 3 |  |  | $ | 3 |  |  | $ | 1 |
Canadian federal and provincial income tax | 109 |  |  | 63 |  |  | 27 |
Total current income tax expense | $ | 112 |  |  | $ | 66 |  |  | $ | 28 |
Deferred income tax expense/(benefit): |  |  |  |  |
Canadian federal and provincial income tax | $ | (46) |  |  | $ | 132 |  |  | $ | 16 |
Total deferred income tax expense/(benefit) | $ | (46) |  |  | $ | 132 |  |  | $ | 16 |
Total income tax expense | $ | 66 |  |  | $ | 198 |  |  | $ | 44 |
The difference between income tax expense based on the statutory federal income tax rate and our effective income tax expense is summarized as follows (in millions):
| Year Ended December 31, |  |  |  |
| 2019 |  | 2018 |  | 2017
Income before tax | $ | 2,246 |  |  | $ | 2,414 |  |  | $ | 902 |
Partnership earnings not subject to current Canadian tax | (1,769) |  |  | (1,690) |  |  | (756) |
| $ | 477 |  |  | $ | 724 |  |  | $ | 146 |
Canadian federal and provincial corporate tax rate | 26 | % |  | 27 | % |  | 27 | %
Income tax at statutory rate | $ | 124 |  |  | $ | 195 |  |  | $ | 39 |
Canadian withholding tax | $ | — |  |  | $ | — |  |  | $ | 2 |
Canadian permanent differences and rate changes | (61) |  |  | — |  |  | 2 |
State income tax | 3 |  |  | 3 |  |  | 1 |
Total income tax expense | $ | 66 |  |  | $ | 198 |  |  | $ | 44 |
Deferred tax assets and liabilities are aggregated by the applicable tax paying entity and jurisdiction and result from the following (in millions):
| December 31, |  |
| 2019 |  | 2018
Deferred tax assets: |  |  |
Lease liabilities | $ | 55 |  |  | $ | — |
Net operating losses | 2 |  |  | 2 |
Other | 16 |  |  | 21 |
Total deferred tax assets | 73 |  |  | 23 |
Deferred tax liabilities: |  |  |
Property and equipment in excess of tax values | (472) |  |  | (449) |
Derivative instruments | (22) |  |  | (31) |
Lease assets | (53) |  |  | — |
Other | (5) |  |  | (42) |
Total deferred tax liabilities | (552) |  |  | (522) |
Net deferred tax liabilities | $ | (479) |  |  | $ | (499) |
Balance sheet classification of deferred tax assets/(liabilities): |  |  |
Other long-term assets, net | $ | 2 |  |  | $ | 2 |
Other long-term liabilities and deferred credits | (481) |  |  | (501) |
| $ | (479) |  |  | $ | (499) |
As of December 31, 2019, we had foreign net operating loss carryforwards of $9 million, which will expire beginning in 2034. Generally, tax returns for our Canadian entities are open to audit from 2015 through 2019. Our U.S. and state tax years are generally open to examination from 2016 to 2019. In reference to tax years 2008 to 2014, we have received notices of reassessment (“notices”) from the Canada Revenue Agency and the Alberta Tax and Revenue Administration (the “Canadian Tax Authorities”) related primarily to transfer pricing associated with cross-border intercompany financing transactions. These notices include assessments, including penalties and interest, associated with these transfer pricing matters totaling approximately $78 million (based on the exchange rate as of December 31, 2019). Payment of a portion of the assessment is required in order to file a notice of objection to dispute the reassessment. Accordingly, we have remitted approximately $48 million (based on the exchange rate as of December 31, 2019) related to the assessments, which is included in “Other long-term assets, net,” on our Consolidated Balance Sheets. We disagree with these notices and have contested the reassessments. We intend to vigorously defend our position, and we plan to pursue all remedies available to us to successfully resolve these matters, including administrative remedies with the Canadian Tax Authorities, and judicial remedies, if necessary. As of December 31, 2019, we believe that our tax position associated with these matters is “more likely than not” to be sustained and have not recognized any amounts for uncertainty in income taxes related to these notices. During the second quarter of 2019, the Alberta government enacted legislation that reduces the Alberta provincial corporate income tax rate from 12% to 8% over the period from July 1, 2019 through January 1, 2022. As a result, during the second quarter of 2019, we recognized a reduction of our deferred income tax liability of approximately $60 million and a corresponding deferred tax benefit.

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- Definition 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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