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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign-sourced earnings. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In other cases, we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes. For the items for which we were able to determine a reasonable estimate, we recognized a provisional amount of $55,400,000, which is included as a component of income tax expense from continuing operations. Provisional amounts Deferred tax assets and liabilities. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of our deferred tax balance was an increase to tax expense of $55,800,000. Foreign tax effects. The one-time transition tax is based on our total post-1986 earnings and profits (E&P) for which we have previously deferred from U.S. income taxes. We recorded a provisional amount for our one-time transition tax liability for all of our foreign subsidiaries, resulting in a decrease in income tax expense of $368,000. We have not yet completed our calculation of the total post-1986 foreign E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time transition tax) is not practicable. Polaris’ income from continuing operations before income taxes was generated from its United States and foreign operations as follows (in thousands):
| For the Years Ended December 31,
| 2017 |  | 2016 |  | 2015
United States | $ | 264,207 |  |  | $ | 262,403 |  |  | $ | 640,604 |
Foreign | 54,584 |  |  | 50,848 |  |  | 45,133 |
Income from continuing operations before income taxes | $ | 318,791 |  |  | $ | 313,251 |  |  | $ | 685,737 |
Components of Polaris’ provision for income taxes for continuing operations are as follows (in thousands):
| For the Years Ended December 31,
| 2017 |  | 2016 |  | 2015
Current: |  |  |  |  |
Federal | $ | 41,134 |  |  | $ | 103,717 |  |  | $ | 211,017 |
State | 7,264 |  |  | 4,780 |  |  | 16,609 |
Foreign | 22,267 |  |  | 17,367 |  |  | 20,733 |
Deferred | 75,634 |  |  | (25,561 | ) |  | (17,983 | )
Total provision for income taxes for continuing operations | $ | 146,299 |  |  | $ | 100,303 |  |  | $ | 230,376 |
Reconciliation of the Federal statutory income tax rate to the effective tax rate is as follows:
| For the Years Ended December 31,
| 2017 |  | 2016 |  | 2015
Federal statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal benefit | 1.4 |  |  | 1.4 |  |  | 1.5 |
Domestic manufacturing deduction | (0.5 | ) |  | (2.1 | ) |  | (0.8 | )
Research and development tax credit | (5.6 | ) |  | (4.3 | ) |  | (3.1 | )
Stock based compensation | (4.4 | ) |  | — |  |  | — |
Valuation allowance for foreign subsidiaries net operating losses | 1.2 |  |  | — |  |  | 0.2 |
Tax rate changes | 17.4 |  |  | — |  |  | — |
Non-deductible expenses | 2.0 |  |  | 2.4 |  |  | 0.4 |
Other permanent differences | (0.6 | ) |  | (0.4 | ) |  | 0.4 |
Effective income tax rate for continuing operations | 45.9 | % |  | 32.0 | % |  | 33.6 | %
The income tax rate for 2017 was 45.9% as compared with 32.0% and 33.6% in 2016 and 2015, respectively. The higher income tax rate for 2017, compared with 2016 was primarily due to a non-cash $55,800,000 write-down of deferred tax assets as a result of the passing of the U.S. tax reform bill in the fourth quarter of 2017, offset by favorable changes related to share-based payment accounting, ASU No. 2016-09, and the related excess tax benefits now recognized as a reduction to income tax expense. The lower income tax rate for 2016, compared with 2015 was primarily due to the decrease in 2016 pretax income, as the beneficial impact of discrete items increases with lower pretax earnings. In December 2015, the President of the United States signed the Consolidated Appropriations Act, 2016, which retroactively reinstated the research and development tax credit for 2015, and also made the research and development tax credit permanent. In addition to the 2015 research and development credits, the Company filed amended returns in 2015 to claim additional credits related to qualified research expenditures incurred in prior years. Undistributed earnings relating to certain non-U.S. subsidiaries of approximately $189,015,000 and $155,386,000 at December 31, 2017 and 2016, respectively, are considered to be permanently reinvested. As explained above, due to the transition tax provisions included in the Act, such earnings will be deemed to be repatriated as of December 31, 2017. We believe the deemed repatriation will result in a net tax benefit of approximately $368,000. While these earnings would no longer be subject to incremental U.S. tax, if the Company were to actually distribute these earnings, they could be subject to additional foreign income taxes and/or withholding taxes payable to non-U.S. countries. As noted above, determination of the unrecognized deferred foreign income tax liability related to these undistributed earnings is not practicable due to the complexities associated with this hypothetical calculation. Polaris utilizes the liability method of accounting for income taxes whereby deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. The net deferred income taxes consist of the following (in thousands):
| December 31,
| 2017 |  | 2016
Deferred income taxes: |  |  |
Inventories | $ | 11,072 |  |  | $ | 13,252 |
Accrued expenses | 102,308 |  |  | 152,798 |
Derivative instruments | 10 |  |  | (175 | )
Cost in excess of net assets of business acquired | (15,171 | ) |  | (10,257 | )
Property and equipment | (52,757 | ) |  | (56,240 | )
Compensation payable in common stock | 55,350 |  |  | 73,297 |
Net operating loss carryforwards and impairments | 13,628 |  |  | 13,650 |
Valuation allowance | (9,057 | ) |  | (6,981 | )
Total net deferred income tax asset | $ | 105,383 |  |  | $ | 179,344 |
At December 31, 2017, the Company had available unused international and acquired federal net operating loss carryforwards of $44,055,000. The net operating loss carryforwards will expire at various dates from 2018 to 2030, with certain jurisdictions having indefinite carryforward terms. Polaris classified liabilities related to unrecognized tax benefits as long-term income taxes payable in the accompanying consolidated balance sheets in accordance with ASC Topic 740. Polaris recognizes potential interest and penalties related to income tax positions as a component of the provision for income taxes on the consolidated statements of income. Reserves related to potential interest are recorded as a component of long-term income taxes payable. The entire balance of unrecognized tax benefits at December 31, 2017, if recognized, would affect the Company’s effective tax rate. The Company does not anticipate that total unrecognized tax benefits will materially change in the next twelve months. Tax years 2012 through 2017 remain open to examination by certain tax jurisdictions to which the Company is subject. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
| For the Years Ended December 31,
| 2017 |  | 2016
Balance at January 1, | $ | 25,001 |  |  | $ | 22,509 |
Gross increases for tax positions of prior years | 1,935 |  |  | 3,065 |
Gross increases for tax positions of current year | 2,397 |  |  | 4,672 |
Decreases due to settlements and other prior year tax positions | (10,338 | ) |  | (3,424 | )
Decreases for lapse of statute of limitations | — |  |  | (1,782 | )
Currency translation effect on foreign balances | 101 |  |  | (39 | )
Balance at December 31, | 19,096 |  |  | 25,001 |
Reserves related to potential interest at December 31, | 1,018 |  |  | 1,389 |
Unrecognized tax benefits at December 31, | $ | 20,114 |  |  | $ | 26,390 |

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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