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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Taxes |
Income Taxes | 5. Income Taxes Domestic and foreign components of income before income taxes were as follows:
|  | Year Ended December 31,
|  | 2019 |  | 2018 |  | 2017
Pre-IPO Domestic |  | $ | — |  | $ | 13,370 |  | $ | 65,023
Post-IPO Domestic |  |  | 173,039 |  |  | 146,620 |  |  | —
Pre-IPO Foreign |  |  | — |  |  | 512 |  |  | 3,073
Post-IPO Foreign |  |  | 15,284 |  |  | 9,299 |  |  | —
Income before income taxes |  | $ | 188,323 |  | $ | 169,801 |  | $ | 68,096
The provision for income taxes consisted of:
|  | Year Ended December 31,
|  | 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 1,088 |  | $ | — |  | $ | —
State |  |  | 1,408 |  |  | 1,172 |  |  | 594
Foreign |  |  | 4,121 |  |  | 3,147 |  |  | 735
Total current income taxes |  |  | 6,617 |  |  | 4,319 |  |  | 1,329
Deferred: |  |  |  |  |  |  |  |  |
Federal |  |  | 14,853 |  |  | 12,589 |  |  | —
State |  |  | 10,681 |  |  | 1,992 |  |  | —
Foreign |  |  | (131) |  |  | 620 |  |  | 220
Total deferred income taxes |  |  | 25,403 |  |  | 15,201 |  |  | 220
Total provision for income taxes |  | $ | 32,020 |  | $ | 19,520 |  | $ | 1,549
The effective income tax rate was different from the statutory U.S. federal income tax rate due to the following:
|  | Year Ended December 31,
|  | 2019 |  | 2018 |  | 2017
Income taxes at 21% (35% for 2017) statutory tax rate |  | $ | 39,548 |  | $ | 35,658 |  | $ | 23,834
Net difference resulting from: |  |  |  |  |  |  |  |  |
Profit of Cactus LLC pre-IPO not subject to U.S. federal tax |  |  | — |  |  | (2,808) |  |  | (22,758)
Profit of non-controlling interest not subject to U.S. federal tax |  |  | (15,477) |  |  | (18,570) |  |  | —
Foreign income taxes (net of foreign tax credit) |  |  | 364 |  |  | 828 |  |  | (302)
State income taxes (excluding rate change) |  |  | 4,887 |  |  | 2,746 |  |  | 594
Impact of change in forecasted state income tax rate |  |  | 5,774 |  |  | — |  |  | —
Foreign withholding taxes |  |  | 988 |  |  | 1,056 |  |  | 220
Change in valuation allowance |  |  | (3,888) |  |  | 733 |  |  | (39)
Other |  |  | (176) |  |  | (123) |  |  | —
Total provision for income taxes |  | $ | 32,020 |  | $ | 19,520 |  | $ | 1,549
Our effective tax rate was 17.0%, 11.5% and 2.3% for the years ended December 31, 2019, 2018 and 2017, respectively. For the year ended December 31, 2019, the primary reason for the change to our effective tax rate relates to an increase in Cactus Inc.’s ownership of Cactus LLC and a write down of our deferred tax asset due to a change in our forecasted state tax rate. Prior to our IPO, our accounting predecessor was a limited liability company treated as a partnership for U.S. federal income tax purposes, and therefore not subject to U.S. federal income taxes. Our operations are subject to state taxes within the United States and our operations in China and Australia are subject to local country income taxes. The components of deferred tax assets and liabilities are as follows:
|  | December 31,
|  | 2019 |  | 2018
Investment in Cactus LLC |  | $ | 234,629 |  | $ | 181,390
Net operating loss carryforwards |  |  | — |  |  | 619
Imputed interest |  |  | 10,323 |  |  | 7,445
Tax credits |  |  | 1,479 |  |  | 1,988
Other |  |  | 155 |  |  | 144
Deferred tax assets |  |  | 246,586 |  |  | 191,586
Valuation allowance |  |  | (24,041) |  |  | (32,533)
Deferred tax asset, net |  | $ | 222,545 |  | $ | 159,053
Foreign withholding taxes |  | $ | 1,054 |  | $ | 1,036
Other |  |  | 294 |  |  | —
Deferred tax liability, net |  | $ | 1,348 |  | $ | 1,036
We recorded a deferred tax asset for the differences between our tax and book basis in the investment in Cactus LLC and imputed interest on the TRA. We also recorded deferred tax assets for foreign tax credits associated with our portion of Cactus LLC’s accrued foreign taxes. We did not have any foreign net operating losses for 2019. Foreign net operating losses were $1.4 million and $1.6 million for 2018 and 2017, respectively. Based upon our cumulative earnings history and forecasted future sources of taxable income, we believe that we will be able to realize the majority of our U.S. deferred tax assets in the future. We do not expect to realize the portion of our deferred tax asset for our investment in Cactus LLC that may only be realizable through the sale or liquidation of the investment and our ability to generate sufficient capital gains. As of December 31, 2019, we have a valuation allowance of $22.7 million against this deferred tax asset. For the year ended December 31, 2019, as a result of the March 2019 Secondary Offering and redemptions of CW Units, we released $5.4 million of our valuation allowance and recorded a tax benefit of $5.4 million related to the realizable portion of the deferred tax asset. As of December 31, 2019, our liability related to the TRA was $216.5 million, representing 85% of the calculated net cash savings in the United States federal, state and local or franchise tax that we anticipate realizing in future years from certain increases in tax basis and certain tax benefits attributed to imputed interest as a result of our acquisition of CW Units. We have determined it is more-likely-than-not that we will be able to utilize all of our tax basis subject to the TRA; therefore, we have recorded a liability related to the TRA for the tax savings we may realize from certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of our acquisition (or deemed acquisition for United States federal income tax purposes) of CW Units. If we determine the utilization of this tax basis is not more-likely-than-not in the future, our estimate of amounts to be paid under the TRA would be reduced. In this scenario, the reduction of the liability under the TRA would result in a benefit to our pre-tax consolidated results of operations. As of December 31, 2019 and 2018, we had no uncertain tax positions. None of our federal or state income tax returns are currently under examination by state taxing authorities.

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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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