Income Taxes

For tax purposes, each partner of the Partnership is required to take into account its share of income, gain, loss and deduction in computing its federal and state income tax liabilities, regardless of whether cash distributions are made to such partner by the Partnership. The taxable income reportable to each partner takes into account differences between the tax basis and fair market value of our assets, the acquisition price of such partner's units and the taxable income allocation requirements under our partnership agreement.

Prior to the Offering, the DKL Predecessor was a corporation included in its parent's consolidated tax return. As such, the DKL Predecessor was subject to both federal and state income taxes and recorded deferred income taxes for the differences between the book and tax bases of its assets and liabilities, which are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Effective with the closing of the Offering, the Partnership is no longer a taxable entity for federal income tax purposes. While most states do not impose an entity level tax on partnership income, the Partnership is subject to entity level tax in both Tennessee and Texas. The Partnership does not file a separate Texas income tax return. Our results of operations are included in Delek’s consolidated return. However, the provisions of ASC 740 have been followed as if we were a stand-alone entity. As a result, the Partnership must record deferred income taxes for the differences between book and tax bases of its assets and liabilities based on those states' enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The total current deferred tax assets and liabilities, excluding the valuation allowance, were nominal as of December 31, 2014 and December 31, 2013. The total non-current deferred tax assets and liabilities, excluding the valuation allowance, were $0.2 million and $0.3 million as of December 31, 2014 and December 31, 2013, respectively. The majority component of our non-current deferred tax liability as of December 31, 2014 and December 31, 2013 was depreciation and amortization.

The difference between the actual income tax expense and the tax expense computed by applying the statutory federal income tax rate to income before income taxes is attributable to the following (in thousands):



	Year Ended December 31,
	2014			2013			2012
Provision for federal income taxes at statutory rate	$	—		$	—		4,047
State income taxes, net of federal tax provision	492			794			(58		)
Valuation allowance	—			—			193
Permanent differences	—			—			300
Conversion to partnership	—			—			(18,534		)
Other items	(360		)	(37		)	28
Income tax (benefit) expense	$	132		$	757		$	(14,024	)

Income tax expense (benefit) is as follows (in thousands):



	Year Ended December 31,
	2014			2013		2012
Current	$	241		$	448	$	4,738
Deferred	(109		)	309		(18,762		)
	$	132		$	757	$	(14,024	)

Deferred income tax expense above is reflective of the changes in deferred tax assets and liabilities during the current period. The majority of the change in deferred tax assets and liabilities in 2013 from 2012 relates to the DKL Predecessor's conversion from a corporation to a partnership and no longer being subject to federal income tax. The conversion from a taxable corporation to a passthrough resulted in a one-time tax benefit of $18.5 million in 2012.

Delek US files a consolidated Texas income tax return and current income tax payments for DKL are paid by Delek US. Therefore, any current income tax payable is included in accounts receivable/payable from related parties. As of December 31, 2014 and 2013, income taxes payable of $0.6 million and $0.4 million, respectively, were included in accounts payable in the accompanying consolidated balance sheets. Taxes that are determined on a consolidated basis apply the “benefits for loss” allocation method; thus, tax attributes are realized when used in the combined tax return to the extent that they have been subject to a valuation allowance.

We recognize accrued interest and penalties related to unrecognized tax benefits as an adjustment to the current provision for income taxes. There were no uncertain tax positions recorded as of December 31, 2014, 2013 or 2012 and there were no interest or penalties recognized related to uncertain tax positions for the years ended December 31, 2014, 2013 or 2012. We have examined uncertain tax positions for any material changes in the next 12 months and none are expected.