Income Taxes

12 Months Ended

Dec. 31, 2019

Income Statement Components

The jurisdictional components of income before taxes consist of the following:


	December 31,
(in thousands)	2019		2018		2017
Income before income taxes:
Domestic	$	54,566	$	66,858	$	61,329
Foreign	29,769		27,673		21,038
	$	84,335	$	94,531	$	82,367

The components of income tax expense (benefit) consist of the following:


	December 31,
(in thousands)	2019		2018		2017
Current:
Domestic	$	6,403	$	6,771	$	26,713
Foreign	8,419		7,391		6,222
State	3,291		4,831		3,789
	18,113		18,993		36,724
Deferred:
Domestic	3,800		2,542		1,711
Foreign	(280)		(390)		(155)
State	(204)		(100)		(228)
	3,316		2,052		1,328
Total income taxes	$	21,429	$	21,045	$	38,052

The difference between income tax expense (benefit) for financial statement purposes and the amount of income tax expense computed by applying the domestic statutory income tax rate of 21% in 2019 and 2018 and 35% in 2017 to income before income taxes consists of the following:


	December 31,
(in thousands)	2019			2018			2017
Income tax expense at statutory rates	$	17,710		$	19,851		$	28,828
Increase (reduction) from:
Jurisdictional rate differences	988			719			(1,863)


Valuation allowance	460			(267)			308
Stock based compensation	(358)			(205)			(778)
U.S. state taxes	3,125			3,917			2,463
Domestic production deduction	—			—			(1,039)
R&D credit	(699)			(531)			(500)
GILTI	872			673			—
Previously unrecognized tax benefit	(1,504)			—			—
Other, net	835			219			397
Provision for income taxes before tax reform	$	21,429		$	24,376		$	27,816
Effective tax rate before effects of tax reform	25		%	26		%	34		%

Tax Reform:
Rate change of deferreds	—			1,200			(3,334)
Transition tax on deemed repatriation	—			(4,531)			13,104
Other	—			—			466
Impact of tax reform	$	—		$	(3,331)		$	10,236

Provision for income tax	$	21,429		$	21,045		$	38,052
Effective tax rate	25		%	22		%	46		%

Deferred Income Tax Assets and Liabilities

Deferred income taxes arise from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The components of the Company’s deferred income tax assets and liabilities consist of the following:


	December 31,
(in thousands)	2019		2018
Deferred income tax assets:
Inventory basis difference	$	4,351	$	1,825
Accounts receivable reserve	384		251
Rental equipment and Property, plant and equipment	73		56
Stock based compensation	391		672
Pension liability	2,874		3,204
Employee benefit accrual	1,669		1,911

Product liability and warranty reserves	2,526		1,294


Foreign net operating loss	4,485		4,164
Lease liability	3,046		—
State net operating loss	148		148

Other	190		(156)

Total deferred income tax assets	$	20,137	$	13,369
Less: Valuation allowance	(4,156)		(3,696)

Net deferred income tax assets	$	15,981	$	9,673

Deferred income tax liabilities:
Inventory basis differences	$	(122)	$	—
Rental equipment and Property, plant and equipment	(17,327)		(9,928)
Lease asset	(3,022)		—
Intangible assets	(18,897)		(8,944)


Expenses not currently deductible for book purposes	(1,996)		(749)

Total deferred income tax liabilities	$	(41,364)	$	(19,621)

Net deferred income taxes	$	(25,383)	$	(9,948)

As of December 31, 2019, the Company had foreign deferred tax assets consisting of foreign net operating losses and other tax benefits available to reduce future taxable income in a foreign jurisdiction. These foreign jurisdictions’ net operating loss carry-forwards are approximately $10,519,000 with an unlimited carry-forward period, and $5,363,000 with a carry-forward expiring in 2036. The Company also has U.S. state net operating loss carry-forwards in the amount of $4,602,000 which will expire between 2020 and 2030.

We have recorded a valuation allowance as of December 31, 2019 and 2018 due to uncertainties related to our ability to utilize some of the deferred income tax assets, primarily consisting of international operating losses and foreign tax credits generated by the transition tax, before they expire. The valuation allowance is based on estimates of taxable income in the various jurisdictions in which we operate and the period over which deferred income tax assets will be recoverable. During 2019, the valuation allowance increased $460,000 related to operating losses generated by foreign affiliates.

Unrecognized Tax Benefits

Unrecognized tax benefits in the amount of $262,000 and $236,000 for 2019 and 2018, respectively, are included in other non-current liabilities on the balance sheet. The unrecognized tax benefits, if recognized, would favorably impact our effective tax rate in a future period. We do not expect our unrecognized tax benefits disclosed above to change significantly over the next 12 months.


Unrecognized Tax Benefits
	December 31,
	2019		2018
Balance as of beginning of year	$	236,000	$	234,000
Increases for tax positions related to the current year	88,000		63,000
Increases in tax positions taken related to liabilities assumed in acquisitions	2,219,000		—
Decreases in tax positions taken related to liabilities assumed in acquisitions	(1,504,000)		—
Decreases as a result of settlements with taxing authorities related to liabilities assumed in acquisitions	(715,000)		—
Decreases due to lapse of statute of limitations	(62,000)		(61,000)
Balance as of end of year	$	262,000	$	236,000

The Company adopted the policy to include interest and penalty expense related to income taxes as interest and other expense, respectively. As of December 31, 2019, no interest or penalties has been accrued. The Company’s open tax years for its federal and state income tax returns are for the tax years ended 2015 through 2019. The Company’s open tax years for its foreign income tax returns are for the tax years ended 2013 through 2019.

The Company previously considered substantially all of the earnings in our foreign subsidiaries to be permanently reinvested and, accordingly, recorded no deferred income taxes on such earnings. As a result of the fundamental changes to the taxation of multinational corporations created by TCJA, we no longer intend to permanently reinvest all of the historical undistributed earnings of our foreign affiliates. We will distribute earnings from our European subsidiaries, while maintaining our permanent reinvestment for our other foreign subsidiaries. There will generally be no U.S. corporate taxes imposed on such future distributions of foreign earnings or foreign withholding and other local taxes. For the amounts we continue to assert permanent reinvestment, if the amounts were distributed, the company would be subject to approximately $3,965,000 in withholding taxes.