Income Taxes

Income Tax Provision

On February 4, 2013, we converted from a limited liability company to a corporation. In addition, we elected to be treated as a corporation for federal and state income tax purposes effective as of January 1, 2013. Therefore, we are subject to federal and state income tax expense beginning January 1, 2013. As a limited liability company, we were treated as a disregarded entity for federal income tax purposes and, as such, were included in the income tax return for BC Holdings. Our income tax provision generally consisted of income taxes payable to state jurisdictions that did not allow for the income tax liability to be passed through to our former sole member as well as income taxes payable by our separate subsidiaries that are taxed as corporations. As a limited liability company, we had an effective tax rate of less than 1%. For the three months ended March 31, 2012, income tax expense was $0.1 million.

The conversion from a limited liability company to a corporation, for tax purposes, was deemed a nontaxable transfer of Boise Cascade, L.L.C., assets and liabilities to Boise Cascade Company. As a result of our conversion to a corporation, we recorded total deferred tax assets of $101.9 million and total deferred tax liabilities of $33.2 million on our Consolidated Balance Sheet, the effect of which was recorded as an income tax benefit in our Consolidated Statement of Operations. These deferred tax items largely consist of a $69.8 million deferred tax asset related to the pension liability, a $27.4 million deferred tax liability related to property and equipment, and $18.0 million of deferred tax assets related to other employee benefits. No valuation allowance was recorded on our domestic deferred tax assets, except for capital loss carryforwards of $6.1 million, as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

As a corporation, we are subject to typical corporate U.S. federal and state income tax rates, which results in a statutory tax rate of approximately 38% under current tax law. Boise Cascade Company will file tax returns as a corporation for the year ending December 31, 2013. For the three months ended March 31, 2013, excluding the discrete establishment of net deferred tax assets, we recorded $7.6 million of income tax expense and had an effective rate of 38.3%. During the three months ended March 31, 2013, the primary reason for the difference from the federal statutory income tax rate of 35% was the effect of state taxes.

A reconciliation of the statutory U.S. federal tax provision and the reported tax provision is as follows (dollars in thousands):



	Three Months Ended March 31, 2013

Income before income taxes	$	19,729
Statutory U.S. income tax rate	35.0		%

Statutory tax provision	$	6,905
State taxes	625
Other	29
Total	$	7,559

Effective income tax rate excluding discrete item	38.3		%

Recognition of beginning deferred tax balances	$	(68,666	)

Income tax benefit with discrete item	$	(61,107	)

Effective income tax rate with discrete item	(309.7		)%

The income tax provision (benefit) shown in the Consolidated Statements of Operations includes the following (dollars in thousands):



	Three Months Ended March 31, 2013

Current income tax provision (benefit)
Federal	$	5,948
State	963
Foreign	—
Total current	$	6,911

Deferred income tax provision (benefit)
Federal	$	(62,348	)
State	(5,670		)
Foreign	—
Total deferred	$	(68,018	)
Income tax benefit	$	(61,107	)

Income Tax Uncertainties

Boise Cascade, or one of its subsidiaries, files federal income tax returns in the U.S. and Canada and various state income tax returns. The significant state jurisdictions are California, Idaho, Oregon, and Texas.

We recognize tax liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available or as new uncertainties occur. As of March 31, 2013, we had an insignificant amount of unrecognized tax benefits recorded on our Consolidated Balance Sheets, and we do not expect a significant change to the amount of unrecognized tax benefits over the next 12 months. We had no unrecognized tax benefits recorded as of December 31, 2012.

We recognize interest and penalties related to uncertain tax positions as income tax expense in our Consolidated Statements of Operations. During each of the three months ended March 31, 2013 and 2012, we recognized an insignificant amount of interest and penalties related to taxes.