Income Taxes

9 Months Ended

Sep. 30, 2018

The gross liability for unrecognized tax benefits at September 30, 2018 and December 31, 2017 was $14,342 and $14,480, respectively, exclusive of interest and penalties, of which $13,670 and $13,737 would affect the effective tax rate if the Company were to recognize the tax benefit.

The Company classifies interest and penalties on unrecognized tax benefits as income tax expense. As of September 30, 2018 and December 31, 2017, the combined amount of accrued interest and penalties related to tax positions taken on tax returns was $1,366 and $1,175, respectively.



	September 30, 2018		December 31, 2017
Gross liability for unrecognized tax benefits, exclusive of interest and penalties	$	14,342	$	14,480
Interest and penalties on unrecognized benefits	1,366		1,175
Total gross uncertain tax positions	$	15,708	$	15,655
Amount included in Current liabilities	$	1,398	$	3,275
Amount included in Other long-term liabilities	14,310		12,380
	$	15,708	$	15,655

The Company's effective income tax rate for the three and nine months ended September 30, 2018 and 2017 differs from the federal income tax statutory rate due to the following:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Statutory rate	21.0	%	35.0	%	21.0	%	35.0	%
State taxes, net of federal tax benefit	2.3		1.7		2.3		1.7
Foreign tax expense and tax rate differential	(0.2	)	(1.0	)	(0.2	)	(1.0	)
Tax benefit from stock option exercises	(1.4	)	(4.5	)	(4.8	)	(3.9	)
Expiration of the statute of limitations	(1.0	)	(2.6	)	(0.3	)	(0.9	)
Provision-to-return adjustment	(2.3	)	—		(0.8	)	—
Other, net	0.2		(0.9	)	—		(0.7	)
	18.6	%	27.7	%	17.2	%	30.2	%

The decrease in the effective tax rates for the three and nine months ended September 30, 2018 was primarily due to the tax changes enacted in the 2017 Tax Cut and Jobs Act (The Tax Act). The Tax Act was enacted on December 22, 2017 and included a permanent reduction in the corporate tax rate from 35.0 percent to 21.0 percent.

The Company's effective tax rates for the three and nine months ended September 30, 2018 were favorably impacted by the reduction of the estimated one-time transition tax enacted by The Tax Act and a provision-to-return adjustment on the Company's 2017 federal income tax return. These adjustments to the one-time transition tax and the Company's deferred taxes represent what the Company believes are its final liabilities under the changes enacted in The Tax Act.

The Tax Act also imposed a territorial rather than worldwide system which requires a one-time transition tax on the repatriation of previously deferred foreign earnings. The Company's one-time transition tax as of the filing of the Company's 2017 Federal Tax Return was $10,711. After the Company made a payment of $1,000 and its estimated tax payments relating to its 2017 tax liability, the IRS issued guidance informing taxpayers that they may not receive a refund or credit of any portion of properly applied 2017 tax payments unless and until the amount of payments exceeds the entire unpaid 2017 repatriation tax liability, including all amounts to be paid in installments in subsequent years. In accordance with this guidance, the Company was required to apply $8,941 from an overpayment of federal taxes against the transition tax payable during the nine months ended September 30, 2018. The remaining amount payable related to the transition tax of $770 is included in Long-term income taxes payable on the accompanying Consolidated Balance Sheet.

The Company files income tax returns in the United States on a consolidated basis and in many U.S. state and foreign jurisdictions. The Company is subject to examination of income tax returns by the Internal Revenue Service (IRS) and other domestic and foreign tax authorities. The Company is no longer subject to U.S. federal income tax examination for years before 2015 and is no longer subject to state, local or foreign income tax examinations by authorities for years before 2013.

The Company estimates it will recognize $1,398 of gross unrecognized tax benefits. This amount is expected to be paid within one year or to be removed at the expiration of the statute of limitations and resolution of income tax audits and is netted against the current payable account. These unrecognized tax benefits are related to tax positions taken on certain federal, state, and foreign tax returns. However, the timing of the resolution of income tax examinations is highly uncertain, and the amounts

ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. While it is reasonably possible that some issues under examination could be resolved in the next twelve months, based upon the current facts and circumstances, the Company cannot reasonably estimate the timing of such resolution or the total range of potential changes as it relates to the current unrecognized tax benefits that are recorded as part of the Company’s financial statements.