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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax 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. 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 Tax 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 Tax Act which resulted in an immaterial change to the provisional amounts described above. Polaris’ income before income taxes was generated from its United States and foreign operations as follows (in thousands):
| For the Years Ended December 31,
| 2019 |  | 2018 |  | 2017
United States | $ | 344,346 |  |  | $ | 344,728 |  |  | $ | 264,207 |
Foreign | 63,454 |  |  | 84,521 |  |  | 54,584 |
Income before income taxes | $ | 407,800 |  |  | $ | 429,249 |  |  | $ | 318,791 |
Components of Polaris’ provision for income taxes are as follows (in thousands):
| For the Years Ended December 31,
| 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
Federal | $ | 46,441 |  |  | $ | 39,051 |  |  | $ | 41,134 |
State | 18,199 |  |  | 3,759 |  |  | 7,264 |
Foreign | 26,798 |  |  | 27,539 |  |  | 22,267 |
Deferred | (7,522 | ) |  | 23,643 |  |  | 75,634 |
Total provision for income taxes | $ | 83,916 |  |  | $ | 93,992 |  |  | $ | 146,299 |
Reconciliation of the Federal statutory income tax rate to the effective tax rate is as follows:
| For the Years Ended December 31,
| 2019 |  | 2018 |  | 2017
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
State income taxes, net of federal benefit | 2.3 |  |  | 1.9 |  |  | 1.4 |
Domestic manufacturing deduction | (2.1 | ) |  | (1.4 | ) |  | (0.5 | )
Research and development tax credit | (4.0 | ) |  | (3.1 | ) |  | (5.6 | )
Stock based compensation | 0.2 |  |  | (1.4 | ) |  | (4.4 | )
Valuation allowance | 0.5 |  |  | 0.2 |  |  | 1.2 |
Tax Reform impact | — |  |  | 0.4 |  |  | 17.4 |
Non-deductible expenses | — |  |  | — |  |  | 2.0 |
Foreign tax rate differential | 1.7 |  |  | 1.3 |  |  | (0.3 | )
Other permanent differences | 1.0 |  |  | 3.0 |  |  | (0.3 | )
Effective income tax rate for continuing operations | 20.6 | % |  | 21.9 | % |  | 45.9 | %
Undistributed earnings relating to certain non-U.S. subsidiaries of approximately $188,033,000 and $186,679,000 at December 31, 2019 and 2018, respectively, are considered to be permanently reinvested. 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):
| As of December 31,
| 2019 |  | 2018
Deferred income taxes: |  |  |
Inventories | $ | 18,550 |  |  | $ | 11,171 |
Accrued expenses | 126,593 |  |  | 105,218 |
Cost in excess of net assets of businesses acquired | (35,203 | ) |  | (22,916 | )
Property and equipment | (88,145 | ) |  | (72,252 | )
Operating lease assets | (26,480 | ) |  | — |
Operating lease liabilities | 27,115 |  |  | — |
Employee compensation and benefits | 61,441 |  |  | 56,286 |
Net operating loss and other loss carryforwards | 20,079 |  |  | 13,847 |
Valuation allowance | (14,620 | ) |  | (10,370 | )
Total net deferred income tax asset | $ | 89,330 |  |  | $ | 80,984 |
At December 31, 2019, the Company had available unused international and acquired federal net operating loss carryforwards of $48,061,000. The net operating loss carryforwards will expire at various dates from 2021 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, 2019, if recognized, would affect the Company’s effective tax rate. The Company anticipates that it is reasonably possible that gross unrecognized tax benefits as of December 31, 2019 may decrease by a range of zero to $12,000,000 during 2020, primarily as a result of ongoing U.S. federal examinations. Tax years 2013 through 2019 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,
| 2019 |  | 2018
Balance at January 1, | $ | 25,511 |  |  | $ | 19,096 |
Gross increases for tax positions of prior years | 1,237 |  |  | 6,586 |
Gross increases for tax positions of current year | 3,969 |  |  | 2,522 |
Decreases due to settlements and other prior year tax positions | (5,629 | ) |  | (2,550 | )
Decreases for lapse of statute of limitations | (752 | ) |  | — |
Currency translation effect on foreign balances | 42 |  |  | (143 | )
Balance at December 31, | 24,378 |  |  | 25,511 |
Reserves related to potential interest and penalties at December 31, | 3,714 |  |  | 3,090 |
Unrecognized tax benefits at December 31, | $ | 28,092 |  |  | $ | 28,601 |

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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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