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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Taxes |
Income Taxes | 17. Income Taxes On December 22, 2017, the President of the United States signed into law P.L. 115-97, commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Act”). The Act modifies several provisions of the Internal Revenue Code related to corporations, including a permanent corporate income tax rate reduction from 35% to 21%, effective January 1, 2018. The Act also significantly changes U.S. international tax laws for tax years beginning after December 31, 2017 and requires a one-time mandatory deemed repatriation of all cumulative post-1986 foreign earnings & profits (“E&P”) of a U.S. Shareholder’s foreign subsidiaries, effective during 2017. In accordance with SAB 118, we have obtained, prepared, and analyzed additional information about facts and circumstances that existed as of the enactment date and computed the U.S. tax impact of the Act. Since the enactment of new tax legislation, the Internal Revenue Service ("IRS") and state tax authorities have issued news releases, notices, instructions and other forms of guidance to assist taxpayers with implementing the Act. We have also considered the impact of any new information provided by the IRS and state tax authorities in reaching our conclusions. We consider our conclusions to be final and complete. We determined that our final U.S. federal and state tax liability as a result of the transition tax on repatriation resulted in $52.2 million on a deemed repatriation of $946.0 million of foreign earnings and profits. The remeasurement of certain deferred tax assets and liabilities due to the corporate income tax rate reduction provided an income tax benefit of $301.2 million. Changes made to the provisional estimates for the tax year ended December 31, 2017 were primarily related to our foreign earnings and profits ("E&P"), foreign tax credits, and partnership outside basis differences related to our investment in Penske Truck Leasing. The following adjustments to our provisional estimates were recorded to current tax expense of deferred tax expense, as applicable, in the third quarter of 2018:
(In millions) |  |
Federal and State Changes Due to Repatriation |  | $ | 12.5
Other Adjustments |  |  | (0.9)
Total SAB 118 Benefit |  | $ | 11.6
As a result of the changes made to the provisional estimates mentioned above, the total benefit recorded as a result of the enactment of the Act increased from $243.4 million to $255.0 million, with the corresponding income tax benefit of $11.6 million recorded in the third quarter of 2018. We have considered and analyzed the applicability of the global intangible low-taxed income (“GILTI”) provisions of the Act beginning in 2018 and its effect on our annualized effective tax rate for 2018. The effect of the GILTI inclusions on the 2018 annualized effective tax rate is not material. We have adopted the method of accounting for GILTI inclusions as a period expense and therefore have not accrued any deferred taxes in relation to this provision in the 2018 consolidated financial statements. Income from continuing operations before income taxes by geographic region was as follows:
|  | Year Ended December 31, |
|  | 2018 |  | 2017 |  | 2016 |
U.S. |  | $ | 390.3 |  | $ | 375.4 |  | $ | 316.7 |
Non-U.S. |  |  | 213.8 |  |  | 172.8 |  |  | 191.4 |
Income from continuing operations before income taxes |  | $ | 604.1 |  | $ | 548.2 |  | $ | 508.1 |
Income taxes relating to income from continuing operations consisted of the following:
|  | Year Ended December 31, |
|  | 2018 |  | 2017 |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (15.6) |  | $ | (3.5) |  | $ | (47.2) |
State and local |  |  | (2.9) |  |  | 4.2 |  |  | 4.7 |
Foreign |  |  | 46.9 |  |  | 43.2 |  |  | 41.0 |
Total current |  | $ | 28.4 |  | $ | 43.9 |  | $ | (1.5) |
Deferred: |  |  |  |  |  |  |  |  |  |
Federal |  |  | 85.9 |  |  | (150.5) |  |  | 140.6 |
State and local |  |  | 20.0 |  |  | 47.2 |  |  | 22.3 |
Foreign |  |  | — |  |  | (5.4) |  |  | (0.7) |
Total deferred |  | $ | 105.9 |  | $ | (108.7) |  | $ | 162.2 |
Income taxes |  | $ | 134.3 |  | $ | (64.8) |  | $ | 160.7 |
Income taxes relating to income from continuing operations varied from the U.S. federal statutory income tax rate due to the following:
|  | Year Ended December 31, |
|  | 2018 |  | 2017 |  | 2016 |
Income taxes at federal statutory rate |  | $ | 126.9 |  | $ | 191.9 |  | $ | 177.8 |
State and local income taxes, net of federal taxes |  |  | 13.8 |  |  | 13.7 |  |  | 14.7 |
Non-U.S. income taxed at other rates |  |  | 1.9 |  |  | (25.2) |  |  | (26.8) |
Revaluation of U.S. deferreds |  |  | — |  |  | (301.6) |  |  | — |
Deemed mandatory repatriation |  |  | — |  |  | 54.8 |  |  | — |
SAB 118 benefit |  |  | (11.6) |  |  | — |  |  | — |
Other |  |  | 3.3 |  |  | 1.6 |  |  | (5.0) |
Income taxes |  | $ | 134.3 |  | $ | (64.8) |  | $ | 160.7 |
The components of deferred tax assets and liabilities as of December 31, 2018 and 2017 were as follows:
|  | December 31, |
|  | 2018 |  | 2017 |
Deferred Tax Assets |  |  |  |  |  |  |
Accrued liabilities |  | $ | 48.7 |  | $ | 53.6 |
Net operating loss and credit carryforwards |  |  | 81.4 |  |  | 131.0 |
Other |  |  | 27.9 |  |  | 24.0 |
Total deferred tax assets |  |  | 158.0 |  |  | 208.6 |
Valuation allowance |  |  | (40.5) |  |  | (36.6) |
Net deferred tax assets |  | $ | 117.5 |  | $ | 172.0 |
Deferred Tax Liabilities |  |  |  |  |  |  |
Depreciation and amortization |  |  | (188.0) |  |  | (178.1) |
Partnership investments |  |  | (499.3) |  |  | (469.5) |
Convertible notes |  |  | — |  |  | (1.5) |
Other |  |  | (8.0) |  |  | (4.4) |
Total deferred tax liabilities |  |  | (695.3) |  |  | (653.5) |
Net deferred tax liabilities |  | $ | (577.8) |  | $ | (481.5) |
We are not permanently reinvested in a portion of our previously-taxed unremitted foreign earnings, which may be distributed in the future. At December 31, 2018, we have accrued the appropriate amount of U.S. state income taxes and foreign withholding taxes for the unremitted foreign earnings that are not permanently reinvested. We have not provided any U.S. taxes on a total temporary difference of $110.5 million related to the excess of financial reporting basis over tax basis in our non-U.S. subsidiaries, as it is our position that we are permanently reinvested for this basis difference. Our U.K. subsidiary remains permanently reinvested in its non-UK subsidiaries. Therefore, we have not recognized any additional deferred tax liabilities related to our investments in non-U.S. subsidiaries. At December 31, 2018, we have $558.7 million of state net operating loss carryforwards in the U.S. that expire at various dates beginning in 2019 through 2038, U.S. federal and state credit carryforwards of $5.4 million that will not expire, a U.S. foreign tax credit carryforward of $31.5 million that will expire in 2027, U.K. capital loss carryforwards of $3.4 million that will not expire, Germany net operating loss carryforwards of $30.6 million that will not expire, Australia net operating loss carryforwards of $10.0 million that will not expire, New Zealand net operating loss carryforwards of $1.7 million that will not expire and Italy net operating loss carryforwards of $0.1 million that will not expire. The Company generated $86.3 million of state net operating loss carryforwards in the U.S. in 2018. A valuation allowance of $0.9 million has been recorded against the state net operating loss carryforwards in the U.S., a valuation allowance of $0.4 million has been recorded against the state credit carryforwards in the U.S., and a valuation allowance of $17.9 million has been recorded against the U.S. foreign tax credit carryforward as of December 31, 2018. A valuation allowance of $13.0 million has been recorded against German net operating losses and other deferred tax assets as of December 31, 2018. A valuation allowance of $8.3 million has been recorded against U.K. deferred tax assets related to buildings as of December 31, 2018. Generally accepted accounting principles relating to uncertain income tax positions prescribe a minimum recognition threshold a tax position is required to meet before being recognized, and provides guidance on the derecognition, measurement, classification, and disclosure relating to income taxes. The movement in uncertain tax positions for the years ended December 31, 2018, 2017, and 2016 were as follows:
|  | Year Ended December 31, |
|  | 2018 |  | 2017 |  | 2016 |
Uncertain tax positions — January 1 |  | $ | 3.5 |  | $ | 3.4 |  | $ | 12.8 |
Gross increase — tax position in prior periods |  |  | — |  |  | 0.2 |  |  | 0.2 |
Gross decrease — tax position in prior periods |  |  | (3.4) |  |  | (0.1) |  |  | (0.3) |
Gross increase — current period tax position |  |  | — |  |  | — |  |  | — |
Settlements |  |  | — |  |  | — |  |  | (7.8) |
Lapse in statute of limitations |  |  | — |  |  | — |  |  | — |
Foreign exchange |  |  | — |  |  | — |  |  | (1.5) |
Uncertain tax positions — December 31 |  | $ | 0.1 |  | $ | 3.5 |  | $ | 3.4 |
We have elected to include interest and penalties in our income tax expense. We had no interest and penalties included within uncertain tax positions at December 31, 2018. We do not expect a significant change to the amount of uncertain tax positions within the next twelve months. Our U.S. federal returns remain open to examination for 2015 through 2017 and various U.S. state jurisdictions are open for periods ranging from 2011 through 2017. The portion of the total amount of uncertain tax positions as of December 31, 2018 that would, if recognized, impact the effective tax rate was $0.1 million. We have classified our tax reserves as a long‑term obligation on the basis that management does not expect to make payments relating to those reserves within the next twelve months.

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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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