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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign-sourced earnings. At December 31, 2017, the Company had not completed its accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, the Company made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. In other cases, the Company had not been able to make a reasonable estimate and accounted for those items based on existing accounting under ASC 740, Income Taxes. For the items for which the Company was able to determine a reasonable estimate, it recognized a provisional amount of $55,400,000, which was included as a component of income tax expense from continuing operations in 2017. Provisional amounts Deferred tax assets and liabilities. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The provisional amount recorded related to the remeasurement of the Company’s deferred tax balance was an increase to tax expense of $55,800,000 in 2017. Foreign tax effects. The one-time transition tax is based on the Company’s total post-1986 earnings and profits (E&P) which were previously deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition tax liability for all of its foreign subsidiaries, resulting in a decrease in income tax expense of $368,000 in 2017. No additional income taxes had 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. The Company has applied the guidance in ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, when accounting for the enactment-date effects of the Act. During the fourth quarter of 2018, the Company elected the period cost method related to the Global Intangible Low-Taxed Income (GILTI) and completed its accounting for the tax effects of the Act which resulted in an immaterial change to the provisional amounts described above. 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,
| 2018 |  | 2017 |  | 2016
United States | $ | 344,728 |  |  | $ | 264,207 |  |  | $ | 262,403 |
Foreign | 84,521 |  |  | 54,584 |  |  | 50,848 |
Income from continuing operations before income taxes | $ | 429,249 |  |  | $ | 318,791 |  |  | $ | 313,251 |
Components of Polaris’ provision for income taxes for continuing operations are as follows (in thousands):
| For the Years Ended December 31,
| 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |
Federal | $ | 39,051 |  |  | $ | 41,134 |  |  | $ | 103,717 |
State | 3,759 |  |  | 7,264 |  |  | 4,780 |
Foreign | 27,539 |  |  | 22,267 |  |  | 17,367 |
Deferred | 23,643 |  |  | 75,634 |  |  | (25,561 | )
Total provision for income taxes for continuing operations | $ | 93,992 |  |  | $ | 146,299 |  |  | $ | 100,303 |
Reconciliation of the Federal statutory income tax rate to the effective tax rate is as follows:
| For the Years Ended December 31,
| 2018 |  | 2017 |  | 2016
Federal statutory rate | 21.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal benefit | 1.9 |  |  | 1.4 |  |  | 1.4 |
Domestic manufacturing deduction | (1.4 | ) |  | (0.5 | ) |  | (2.1 | )
Research and development tax credit | (3.1 | ) |  | (5.6 | ) |  | (4.3 | )
Stock based compensation | (1.4 | ) |  | (4.4 | ) |  | — |
Valuation allowance | 0.2 |  |  | 1.2 |  |  | — |
Tax Reform impact | 0.4 |  |  | 17.4 |  |  | — |
Non-deductible expenses | — |  |  | 2.0 |  |  | 2.4 |
Foreign tax rate differential | 1.3 |  |  | (0.3 | ) |  | (1.6 | )
Other permanent differences | 3.0 |  |  | (0.3 | ) |  | 1.2 |
Effective income tax rate for continuing operations | 21.9 | % |  | 45.9 | % |  | 32.0 | %
The income tax rate for 2018 was 21.9% as compared with 45.9% and 32.0% in 2017 and 2016, respectively. The lower income tax rate for 2018, compared with 2017 was primarily due to the reduction in the federal statutory rate to 21 percent effective during 2018 and 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 a decrease in excess tax benefits related to share based compensation as compared to 2017. In addition, the Company filed amended returns to claim an increase in the Domestic Manufacturing Deduction as well as other claims for additional credits related to qualified research expenditures incurred in prior years. 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 and the related excess tax benefits now recognized as a reduction to income tax expense in accordance with ASU No. 2016-09. Undistributed earnings relating to certain non-U.S. subsidiaries of approximately $186,679,000 and $189,015,000 at December 31, 2018 and 2017, respectively, are considered to be permanently reinvested. As explained above, due to the transition tax provisions included in the Act, such earnings were deemed to be repatriated as of December 31, 2017. 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. 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,
| 2018 |  | 2017
Deferred income taxes: |  |  |
Inventories | $ | 11,171 |  |  | $ | 11,072 |
Accrued expenses | 105,218 |  |  | 102,318 |
Cost in excess of net assets of businesses acquired | (22,916 | ) |  | (15,171 | )
Property and equipment | (72,252 | ) |  | (52,757 | )
Employee compensation and benefits | 56,286 |  |  | 55,350 |
Net operating loss and other loss carryforwards | 13,847 |  |  | 13,628 |
Valuation allowance | (10,370 | ) |  | (9,057 | )
Total net deferred income tax asset | $ | 80,984 |  |  | $ | 105,383 |
At December 31, 2018, the Company had available unused international and acquired federal net operating loss carryforwards of $28,091,000. The net operating loss carryforwards will expire at various dates from 2019 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 federal benefit of state taxes and interest related to the reserves is recorded as a component of deferred taxes. The entire balance of unrecognized tax benefits at December 31, 2018, 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 2013 through 2018 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,
| 2018 |  | 2017
Balance at January 1, | $ | 19,096 |  |  | $ | 25,001 |
Gross increases for tax positions of prior years | 6,586 |  |  | 1,935 |
Gross increases for tax positions of current year | 2,522 |  |  | 2,397 |
Decreases due to settlements and other prior year tax positions | (2,550 | ) |  | (10,338 | )
Currency translation effect on foreign balances | (143 | ) |  | 101 |
Balance at December 31, | 25,511 |  |  | 19,096 |
Reserves related to potential interest at December 31, | 3,090 |  |  | 1,018 |
Unrecognized tax benefits at December 31, | $ | 28,601 |  |  | $ | 20,114 |

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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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