13.	Income Taxes

The Company

’s provision for income taxes consists of the following:

	Year Ended December 31,
	201 7			201 6			201 5
Current:
Federa l	$	15,753		$	11,717		$	13,614
State		1,775			2,047			1,966
Foreig n		4,585			4,460			3,588
		22,113			18,224			19,168
Deferred:
Federa l		17,737			41,264			31,869
State		4,026			3,029			1,387
Foreig n		(2,777	)		(5,585	)		(7,326	)
		18,986			38,708			25,930
Change in valuation allowanc e		2,454			638			138
Provision for income taxe s	$	43,553		$	57,570		$	45,236

The Company files U.S federal, U.S. state and foreign jurisdiction tax returns that are subject to examination up to the expiration of the statute of limitations. We believe the tax positions taken on our returns would be sustained upon an exam, or where a position is uncertain, adequate reserves have been recorded.

As of

December 31, 2017

the Company is

longer subject to income tax examinations for United States federal income taxes for the tax years prior to

014.

Due to the carryforward of net operating losses, and research and development credits, the Company's Wisconsin state income tax returns for tax years

2007

through

2016

remain open. In addition, the Company is subject to audit by various foreign taxing jurisdictions for the tax years

2012

through

2016.

The Company is currently under examination in multiple jurisdictions and is working to address all matters. While the Compa

ny does

not

believe any material taxes or penalties are due, there is a possibility that the ultimate tax outcome of an examination

may

result in differences from what was recorded. Such differences

may

affect the provision for income taxes in the period in which the determination is made, and could impact the Company’s financial results.

December 22, 2017,

the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but

not

limited to, reducing the U.S. federal corporate tax rate from

35%

21%

, requiring companies to pay a

one

-time transition tax on certain unrepatriated earnings of foreign subsidiaries, eliminating certain deductions, introducing new tax regimes, changing how foreign earnings are subject to U.S. tax, and enhancing and extending through

2026

the option to claim accelerated depreciation deductions on qualified property.

The SEC staff issued SAB

118,

which provides guidance on accounting for the tax effects of the Tax Act. SAB

118

provides a measurement period that should

not

extend beyond

one

year from the Tax Act enactment date for companies to complete the accounting under ASC

740.

In accordance with SAB

118,

a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC

740

is complete. To the extent that a company

’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC

740

on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Company's accounting for the following elements of the Tax Act is incomplete. However, reasonable estimates of certain effects were able to be made and, therefore, provisional adjustments were recorded as follows:

Reduction of US federal corporate tax rate:

The Tax Act reduces the federal corporate tax rate to

21%

, effective

January 1, 2018.

For certain of the Company's deferred tax liabilities (DTLs), a provisional decrease of

$28,434

was recorded to reflect our DTLs at thelower corporate tax rate, with a corresponding net adjustment to deferred income tax benefit of

$28,434

for the year ended

December 31, 2017.

While a reasonable estimate of the impact of the reduction in the corporate tax rate was made, it

may

be affected by other analyses related to the Tax Act, including, but

not

limited to, the calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences.

Deemed Repatriation Transition Tax:

The Deemed Repatriation Transition Tax (Transition Tax) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company

’s foreign subsidiaries. To determine the amount of the Transition Tax, the amount of post-

1986

E&P of relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings must be determined, in addition to other factors. The Company made a reasonable estimate of the Transition Tax and has concluded the amount was

not

material.

Cost recovery:

While the Company has

not

yet completed all of the computations necessary or completed an inventory of our

2017

expenditures that qualify for immediate expensing, a provisional benefit of

$700

was recorded based on our current intent to fully expense all qualifying expenditures. This resulted in a decrease of approximately

$1,750

to current income tax payable and a corresponding increase in DTLs of approximately

$1,050

(after considering the effects of the reduction in income tax rates).

As the Company completes its analysis of the Tax Act; collects and prepares necessary data; and interprets any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies; adjustments to the provisional amounts

may

be recorded.

Global intangible low taxed income (GILTI):

Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Tax Act and the application of ASC

740.

Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (

) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (

) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing the Company's global income to determine whether it is expected to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends

not

only on the current structure and estimated future results of global operations but also on the intent and ability to modify the structure and/or the business; the Company is not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore,

adjustments related to potential GILTI tax have been made in the financial statements and

policy decision regarding whether to record deferred taxes on GILTI has been made.

Significant components of deferred tax assets and liabilities are as follows:

	December 31,
	201 7			201 6
Deferred tax assets:
Accrued expense s	$	15,138		$	22,758
Deferred revenu e		8,060			10,645
Inventorie s		7,933			10,159
Pension obligation s		3,795			7,512
Stock-based compensatio n		5,522			7,291
Operating loss and credit carryforward s		23,771			20,927
Othe r		1,064			2,822
Valuation allowanc e		(6,817	)		(4,362	)
Total deferred tax asset s		58,466			77,752

Deferred tax liabilitites :
Goodwill and intangible assets		70,556			58,133
Depreciation		22,563			25,194
Debt refinancing cost s		5,189			7,193
Prepaid expense s		709			1,173
Total deferred tax liabilitie s		99,017			91,693

Net deferred tax liabilities	$	(40,551	)	$	(13,941	)

As of

December 31,

201

and

2016,

deferred tax assets of

$3,238

and

$3,337,

and deferred tax liabilities of

$43,789

and

$17,278,

respectively, were reflected on the consolidated balance sheets.

One of the Company's subsidiaries, Generac Brazil,

has generated net operating losses for multiple years. The realizability of the deferred tax assets associated with these net operating losses is uncertain, therefore a valuation allowance has been recorded since Generac Brazil's acquisition on

December 8, 2012

and continued through

December 31, 2017.

In addition, the Company recorded a valuation allowance in the opening balance sheet and as of

December 31,

2017

and

2016

related to the Pramac acquisition. The valuation allowance represents a reserve for deferred tax assets, including loss carryforwards, of certain Pramac subsidiaries, for which utilization is uncertain.

December 31,

201

the Company had state research and development tax credit carryforwards, and state manufacturing tax credit carryforwards of approximately

$13,089

and

$4,618,

respectively, which expire between

2018

and

2032.

A valuation allowance of

$1,171

has been established against deferred tax assets for these carryforwards.

Changes in the Company

’s gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows:

	December 31,
	201 7			201 6
Unrecognized tax benefit, beginning of perio d	$	7,943		$	7,239
Increase in unrecognized tax benefit for positions take n in current perio d		251			704
Statute of limitation expirations		(1,072	)		-
Unrecognized tax benefit, end of perio d	$	7,122		$	7,943

The unrecognized tax

benefit as of

December

31,

2017

and

2016,

if recognized, would impact the effective tax rate.

As of

December

31,

2017,

2016

and

2015,

total accrued interest of approximately

$131,

$272

and

$174,

respectively, and accrued penalties of approximately

$220,

$425

and

$363,

respectively, associated with net unrecognized tax benefits are included in the Company’s consolidated balance sheets.

Interest and penalties are recorded as a component of income tax expense.

he Company does

not

expect a significant increase or decrease to the total amounts of unrecognized tax benefits related to continuing operations during the fiscal year ending

December

31,

2018.

The Tax Act includes a mandatory

one

-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously

unremitted earnings for which

U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, the Company intends to continue to invest these earnings, as well as the capital in these subsidiaries, indefinitely outside of the U.S. and do

not

expect to incur any significant, additional taxes related to such amounts.

A reconciliation

of the statutory tax rates and the effective tax rates for the years ended

December 31, 2017

2016

and

2015

are as follows:

	Year Ended December 31,
	201 7			201 6			201 5
U.S. statutory rat e		35.0	%		35.0	%		35.0	%
State taxe s		4.1			4.1			4.1
Research and development credit s		(1.4	)		(1.0	)		(2.3	)
Share-based compensation (1 )		(1.4	)		-			-
Tax Act impac t		(13.9	)		-			-
Other		(1.1	)		(1.3	)		-
Effective tax rat e		21.3	%		36.8	%		36.8	%

(

)

With the adoption of ASU

2016

in the

first

quarter of

2017,

excess tax benefits from equity awards are reflected within the provision for income taxes rather than within the consolidated balance sheet. For further information on the Company’s adoption of ASU

2016

09,

refer to Note

“Significant Accounting Policies – New Accounting Pronouncements” to the consolidated financial statements.