Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”), was enacted by the U.S. government. The legislation makes broad and complex changes to the U.S. tax code affecting the taxation of businesses in all industries. The most significant impact to our financial statements is the reduction of the corporate federal income tax rate from 35% to 21%. Other relevant provisions which may impact our financial statements in the future include, but are not limited to, the elimination of the production activities deduction, limitations on the deductibility of certain executive compensation, bonus depreciation to allow immediate expensing of qualified property, and limitations on deductible interest expense.

As of December 31, 2017, we have not completed our assessment of the effects of the Tax Act on our financial statements. We have however made reasonable estimates of the effects on our existing deferred tax balances. In connection with our initial analysis of the Tax Act, we have recorded a provisional discrete tax benefit of $8.1 million during the year ended December 31, 2017, which is reflected in the tables below. We continue to evaluate the effects of the Tax Act on our financial statements particularly relating to the deferred balances subject to the rate reduction, the state tax effect of adjustments made to federal temporary differences, potential effects on valuation allowance analyses for state income tax credits, and the cost recovery provisions of the new bonus depreciation rules. The assessment is expected to be complete when the 2017 federal corporate income tax return is filed in 2018.

Income Tax Provision

Income before income taxes includes the following components:



	Year Ended December 31
	2017		2016		2015
	(thousands)
Domestic	$	115,083	$	41,703	$	79,414
Foreign	2,505		1,598		1,268
Income before income taxes	$	117,588	$	43,301	$	80,682

The income tax provision shown in the Consolidated Statements of Operations includes the following:



	Year Ended December 31
	2017		2016			2015
	(thousands)
Current income tax provision (benefit)
Federal	$	22,541	$	10,664		$	(2,938	)
State	3,973		2,201			555
Foreign	—		5			—
Total current	26,514		12,870			(2,383		)

Deferred income tax provision (benefit)
Federal	6,747		2,549			27,011
State	991		(1,536		)	3,872
Foreign	379		(8,836		)	—
Total deferred	8,117		(7,823		)	30,883
Income tax provision	$	34,631	$	5,047		$	28,500

The effective tax rate varies from the U.S. Federal statutory income tax rate principally due to the following:



	Year Ended December 31
	2017			2016			2015
	(thousands, except percentages)
Income before income taxes	$	117,588		$	43,301		$	80,682
Statutory U.S. income tax rate	35.0		%	35.0		%	35.0		%

Statutory tax provision	$	41,156		$	15,155		$	28,239
State taxes	3,719			1,370			3,006
Domestic production activities deduction	(963		)	(165		)	(299		)
Unrecognized tax benefits	(86		)	1,717			433
Benefit from enactment of the Tax Cuts and Jobs Act	(8,129		)	—			—
Change in valuation allowance (a)	—			(9,884		)	—
Tax credits	(912		)	(2,904		)	(2,043		)
Other	(154		)	(242		)	(836		)
Total	$	34,631		$	5,047		$	28,500

Effective income tax rate	29.5		%	11.7		%	35.3		%

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(a)

Deferred tax assets in our foreign subsidiaries are primarily the result of net operating losses. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. During fourth quarter 2016, because we achieved three years of cumulative pretax income in the Canadian tax jurisdiction and due to the implementation of a tax-planning strategy, management determined that there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets are realizable and therefore released the valuation allowance in the amount of $9.9 million.

During the years ended December 31, 2017, 2016, and 2015, cash paid for taxes, net of refunds received, was $36.1 million, $6.7 million, and $0.7 million, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The components of our net deferred tax assets and liabilities at December 31, 2017 and 2016, are summarized as follows:



	December 31, 2017			December 31, 2016
	(thousands)
Deferred tax assets
Employee benefits	$	30,853		$	54,895
Inventories	4,598			5,237
Foreign net operating loss carryforward	5,137			5,383
Other	6,003			7,628
Net deferred tax assets	$	46,591		$	73,143

Deferred tax liabilities
Property and equipment	$	(47,946	)	$	(62,948	)
Intangible assets and other	(4,168		)	(5,039		)
Other	(1,867		)	(2,655		)
Deferred tax liabilities	$	(53,981	)	$	(70,642	)

Total deferred tax assets (liabilities), net	$	(7,390	)	$	2,501

As of December 31, 2017, we have foreign net operating loss carryforwards of $23.3 million, which if unused, will expire in years 2026 through 2036. We have state income tax credits totaling $1.6 million as of December 31, 2017, which if unused will expire in years 2020 through 2032. The foreign net operating loss and state credit carryforwards in the income tax returns filed included unrecognized tax benefits. The deferred tax assets recognized for those net operating loss and state credit carryforwards are presented net of these unrecognized tax benefits.

Income Tax Uncertainties

The following table summarizes the changes related to our gross unrecognized tax benefits excluding interest and penalties:



	2017			2016			2015
	(thousands)
Balance as of January 1	$	2,224		$	878		$	309
Increases related to prior years' tax positions	1			1,657			431
Increases related to current year tax positions	51			104			145
Decreases related to prior years' tax positions	(12		)	—			(7		)
Lapse of statute of limitations	(181		)	—			—
Settlements	—			(415		)	—
Balance as of December 31	$	2,083		$	2,224		$	878

As of December 31, 2017, 2016 and 2015, we had $2.1 million, $2.2 million, and $0.9 million respectively, of unrecognized tax benefits recorded on our Consolidated Balance Sheets, excluding interest and penalties. Of the total unrecognized tax benefits recorded, $2.0 million, $2.1 million, and $0.7 million (net of the federal benefit for state taxes), respectively, would impact the effective tax rate if recognized.

We recognize interest and penalties related to uncertain tax positions as income tax expense in our Consolidated Statements of Operations. For the years ended December 31, 2017, 2016, and 2015, we recognized an insignificant amount of interest and penalties related to taxes. 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. We do not expect the unrecognized tax benefits to change significantly over the next twelve months.

We file income tax returns in the U.S. and various state and foreign jurisdictions. Tax years 2014 to present remain open to examination in the U.S. and tax years 2013 to present remain open to examination in Canada and various states. We recorded net operating losses in Canada beginning in 2006 that are subject to examinations and adjustments up to four years following the year in which they are utilized.