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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 Company elected to be taxed as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the filing of its 2015 tax return for its tax year ended December 31, 2015. With exception to the Company’s taxable REIT subsidiary (“TRS”), to the extent the Company meets certain requirements under the Code, the Company will not be taxed on its federal taxable income. If we fail to qualify as a REIT for any taxable year, we will be subject to federal income taxes at regular corporate rates (including any alternative minimum tax, which, for corporations, was repealed under the TCJA (defined below) for tax years beginning after December 31, 2017) and may not be able to qualify as a REIT for the four subsequent taxable years. In addition to its TRS, the Company is subject to certain foreign and state and local income and taxes, including a 29% non-resident withholding tax on its two Puerto Rico malls, which are included in income tax expense in the consolidated statements of income. The Company is also subject to certain other taxes, including state and local franchise taxes which are included in general and administrative expenses in the consolidated statements of income. On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law. The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. Effective January 1, 2018, for businesses, the Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. Since UE has elected to qualify as a REIT under sections 856-860 of the Internal Revenue Code with intent to distribute 100% of its taxable income and did not have any activities in a Taxable REIT Subsidiary (“TRS”) prior to January 1, 2018, there was no impact to the Company’s financial statements. The Company satisfied its REIT distribution requirement by distributing $0.88 per common share in 2018. The taxability of such dividends are as follows:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
Dividend paid per share | $ | 0.88 |  |  | $ | 0.88 |  |  | $ | 0.82 |
Ordinary income | 100 | % |  | 58 | % |  | 100 | %
Return of capital | — | % |  | — | % |  | — | %
Capital gains | — | % |  | 42 | % |  | — | %
The REIT and the other minority members are partners in the Operating Partnership. As such, the partners are required to report their share of taxable income on their tax returns. On December 31, 2017, the Company elected, for tax purposes, to treat the wholly-owned limited partnership that held its Allentown property as a taxable REIT subsidiary (“TRS”). A TRS is a corporation, other than a REIT, in which we directly or indirectly hold stock, which has made a joint election with us to be treated as a TRS under Section 856(l) of the Code. A TRS is required to pay regular U.S. federal income tax, and state and local income tax where applicable, as a non-REIT “C” corporation. The Allentown legal entity restructuring resulted in a capital gain recognized for tax purposes in 2017 and a step up in tax basis to the Allentown property resulting in no capital gains recognized for tax purposes in 2018 upon the property’s sale on April 26, 2018. The Company’s consolidated financial statements for the year ended December 31, 2018 reflect the TRS’ federal and state corporate income taxes associated with the operating activities at the TRS. The tax expense recorded in association with the operating activities of the TRS was $0.2 million for the year ended December 31, 2018. Our two Puerto Rico malls are subject to a 29% non-resident withholding tax which is included in income tax expense in the consolidated statements of income. The Puerto Rico tax expense recorded was $3.3 million and $0.8 million for the years ended December 31, 2018 and December 31, 2016, respectively. For the year ended December 31, 2017, the Puerto Rico tax benefit recorded was $0.3 million. Both properties are held in a special partnership for Puerto Rico tax reporting purposes (the general partner being a qualified REIT subsidiary or “QRS”). Income tax expense (benefit) consists of the following:
| Year Ended December 31,
(Amounts in thousands) | 2018 |  | 2017 |  | 2016
Income tax expense (benefit): |  |  |  |  |
Current: |  |  |  |  |
U.S. federal income tax | $ | 154 |  |  | $ | — |  |  | $ | — |
U.S. state and local income tax | 101 |  |  | 22 |  |  | — |
Puerto Rico income tax | 560 |  |  | 674 |  |  | 609 |
Total current | 815 |  |  | 696 |  |  | 609 |
Deferred: |  |  |  |  |
Puerto Rico income tax | 2,704 |  |  | (974 | ) |  | 195 |
Total deferred | 2,704 |  |  | (974 | ) |  | 195 |
Total income tax expense (benefit) | $ | 3,519 |  |  | $ | (278 | ) |  | $ | 804 |
A net deferred tax liability of $5.5 million is included in our consolidated balance sheet within Accounts payable, accrued expenses and other liabilities as of December 31, 2018, comprised of temporary differences related to our two Puerto Rico properties, which have resulted in a deferred tax liability of $6.6 million offset by a deferred tax asset of $1.1 million. The deferred tax liability of $6.6 million is comprised of $4.5 million of tax depreciation in excess of GAAP depreciation, $1.9 million straight-line rents and $0.2 million of amortization of acquired leases not recorded for tax purposes. The deferred tax asset of $1.1 million is comprised of $0.5 million of insurance receivables recorded for tax purposes, $0.1 million of amortization of deferred financing fees not recorded for tax purposes and $0.5 million excess of bad debt expense for tax purposes. No valuation allowance has been recorded against the Company’s deferred tax assets because the Company believes that the deferred tax assets will, more likely than not, be realized. This determination is based on the Company’s anticipated future taxable income and the reversal of the deferred tax assets. The temporary differences resulting from activity during the years ended December 31, 2018, 2017, and 2016 is recorded within Income tax expense on the consolidated statements of income. Below is a table summarizing the net deferred income tax liability balance as of December 31, 2018 and 2017:
(Amounts in thousands) |
Balance at January 1, 2017 | $ | (3,802 | )
Change in deferred tax assets: |
Depreciation | (312 | )
Amortization of deferred financing costs | (46 | )
Provision for doubtful accounts | 514 |
Insurance claims receivable | 501 |
Change in deferred tax liabilities: |
Depreciation | 102 |
Straight-line rent | 207 |
Amortization of acquired leases | 8 |
Balance at December 31, 2017 | (2,828 | )
Change in deferred tax assets: |
Amortization of deferred financing costs | (46 | )
Provision for doubtful accounts | (200 | )
Insurance claims receivable | (42 | )
Charitable contribution | 5 |
Change in deferred tax liabilities: |
Depreciation | (2,261 | )
Straight-line rent | (181 | )
Amortization of acquired leases | 21 |
Balance at December 31, 2018 | $ | (5,532 | )
We record uncertain tax positions in accordance with ASC 740 Income Taxes on the basis of a two-step process whereby (i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company has not recorded any uncertain tax positions for tax year 2018. The Operating Partnership is organized as a limited partnership and is generally not subject to federal income tax. Accordingly, no provision for federal income taxes has been reflected in the accompanying consolidated financial statements outside of the Company’s TRS activities.

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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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