Income Taxes

We have elected to be treated as a REIT under the provisions of the Internal Revenue Code, which requires that we distribute at least 90% of our taxable income annually to our stockholders and comply with certain other requirements. In addition to paying federal and state taxes on any retained income, we may be subject to taxes on “built in gains” on sales of certain assets. Our taxable REIT subsidiaries are subject to federal, state, local and/or foreign income taxes.

Our provision for income taxes consists of the following (in thousands):



	Year Ended December 31,
	2017		2016			2015
Current - Federal	$	622	$	—		$	—
State	1,221		1,297			770
Foreign	662		697			515
	2,505		1,994			1,285
Deferred - Federal	6,432		9,779			8,249
State	425		1,324			2,315
Foreign	845		(698		)	(274		)
	7,702		10,405			10,290
Income tax provision	$	10,207	$	12,399		$	11,575

A reconciliation of the statutory federal tax provision to our income tax provision is as follows (in thousands):



	Year Ended December 31,
	2017			2016			2015
Statutory federal tax provision (35)%	$	35,729		$	44,518		$	34,272
Tax impact of REIT election	(22,277		)	(31,101		)	(21,544		)
State income tax provision, net of federal tax benefit	1,652			1,703			1,745
Foreign income tax benefit	(430		)	(3,080		)	(2,266		)
Tax reform impact on U.S. taxes	(2,143		)	—			—
Tax reform impact on foreign taxes	(2,076		)	—			—
Other	(248		)	359			(632		)
Income tax provision	$	10,207		$	12,399		$	11,575

On December 22, 2017, the U.S. government enacted comprehensive tax legislation, H.R. 1, originally known as the Tax Cuts and Jobs Act (the "Tax Act"). Among other changes to the U.S. tax code, the Tax Act reduces the U.S. federal corporate income tax rate to 21%, and requires companies to pay a one-time transition tax on certain unrepatriated earnings (where applicable) of foreign subsidiaries with an election option to defer the transition tax over eight years. Accordingly, our federal net deferred tax liabilities as of December 31, 2017 have been remeasured using a U.S. federal income tax rate of 21% that is effective beginning on January 1, 2018, to reflect the effects of the enacted changes in tax rates at the date of enactment based on the applicable enacted tax rate when the temporary differences and carryforwards are expected to reverse. The impact of this remeasurement is a decrease to net deferred tax liabilities and a decrease to the deferred income tax provision in 2017 of approximately $4.2 million. Additionally, we incurred a transition tax obligation of $18.2 million related to the deemed mandatory repatriation of foreign earnings and profits of the Frenchman's Reef & Morning Star Marriott Beach Resort (located in the U.S. Virgin Islands) that we have elected to defer over the eight-year period allowed (upon election) under the Tax Act. The transition tax increased our 2017 REIT taxable income in 2017 by approximately $1.5 million.

We are required to pay franchise taxes in certain jurisdictions. We recorded approximately $0.4 million of franchise taxes during each of the years ended December 31, 2017, 2016 and 2015, which are classified as corporate expenses in the accompanying consolidated statements of operations.

Deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are paid. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realizable based on consideration of available evidence, including future reversals of existing taxable temporary differences, projected future taxable income and tax planning strategies. Deferred tax assets are included in prepaid and other assets and deferred tax liabilities are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. The total deferred tax assets and liabilities are as follows (in thousands):



	2017			2016
Federal
Net operating loss carryforwards	$	3,099		$	12,629
Deferred income related to key money	2,549			5,313
Alternative minimum tax credit carryforwards	169			—
Other	355			296
Depreciation and amortization	(8,889		)	(14,535		)
Federal - Deferred tax (liabilities) assets, net	$	(2,717	)	$	3,703

State
Net operating loss carryforwards	$	3,126		$	3,021
Deferred income related to key money	801			816
Alternative minimum tax credit carryforwards	81			71
Other	111			45
Depreciation and amortization	(2,803		)	(2,231		)
Less: Valuation allowance	(400		)	(400		)
State - Deferred tax assets, net	$	916		$	1,322

Foreign (USVI)
Deferred income related to key money	$	95		$	1,278
Depreciation and amortization	(796		)	508
Other	1			2
Land basis recorded in purchase accounting	(2,617		)	(4,260		)
Foreign - Deferred tax liabilities, net	$	(3,317	)	$	(2,472	)

As of December 31, 2017, we had deferred tax assets of $6.2 million consisting of federal and state net operating loss carryforwards. The federal loss carryforwards of $3.1 million generally expire in 2029 through 2034 if not utilized by then. We believe that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset related to federal loss carryforwards prior to their expiration and have determined that no valuation allowance is required. The state loss carryforwards of $3.1 million generally expire in 2020 through 2034 if not utilized by then. The Company analyzes state loss carryforwards on a state by state basis and records a valuation allowance when we deem it more likely than not that future results will not generate sufficient taxable income in the respective state to realize the deferred tax asset prior to the expiration of the loss carryforwards. As of December 31, 2017, we have a $0.4 million valuation allowance on the deferred tax asset related to the Illinois state loss carryforward. The remaining deferred tax assets of $4.2 million are expected to be recovered against reversing existing taxable temporary differences.

The Frenchman's Reef & Morning Star Marriott Beach Resort is owned by a subsidiary that has elected to be treated as a TRS, and is subject to U.S. Virgin Islands ("USVI") income taxes. We are party to a tax agreement with the USVI that reduces the income tax rate to approximately 7%. This agreement expires in February 2030.