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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Taxes |
Income Taxes | (6) Income Taxes The components of income before income taxes are as follows
|  | Years ended December 31, |
|  | 2017 |  | 2016 |  | 2015 |
|  | (in thousands) |
United States |  | $ | 35,050 |  | $ | 21,634 |  | $ | 11,319 |
Foreign |  |  | 961 |  |  | 2,312 |  |  | 1,456 |
Income before income taxes |  | $ | 36,011 |  | $ | 23,946 |  | $ | 12,775 |
The components of income tax (benefit) expense for the three years ended December 31, 2017 were as follows:
|  | Federal |  | State |  | Foreign |  | Total |
|  | (in thousands) |
2017 |  |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | (58) |  | $ | 284 |  | $ | 20 |  | $ | 246 |
Deferred |  |  | (31,198) |  |  | 4,805 |  |  | — |  |  | (26,393) |
Total |  | $ | (31,256) |  | $ | 5,089 |  | $ | 20 |  | $ | (26,147) |
2016 |  |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 324 |  | $ | 14 |  | $ | 440 |  | $ | 778 |
Deferred |  |  | 8,807 |  |  | 292 |  |  | — |  |  | 9,099 |
Total |  | $ | 9,131 |  | $ | 306 |  | $ | 440 |  | $ | 9,877 |
2015 |  |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | (208) |  | $ | 13 |  | $ | 476 |  | $ | 281 |
Deferred |  |  | 4,871 |  |  | 1,163 |  |  | — |  |  | 6,034 |
Total |  | $ | 4,663 |  | $ | 1,176 |  | $ | 476 |  | $ | 6,315 |
The following is a reconciliation of the federal income tax (benefit) expense at the statutory rate of 34% to the effective income tax expense:
|  | Years Ended December 31, |
|  | 2017 |  | 2016 |  | 2015 |
|  | (in thousands) |
Statutory federal income tax expense |  | $ | 12,244 |  | $ | 8,142 |  | $ | 4,343 |
State taxes, net of federal benefit |  |  | 3,360 |  |  | 202 |  |  | 776 |
Foreign tax paid |  |  | 20 |  |  | 440 |  |  | 476 |
Change in federal tax rate |  |  | (43,643) |  |  | — |  |  | — |
Tax consequences of the sale of engines to WMES |  |  | 164 |  |  | — |  |  | (306) |
Uncertain tax positions |  |  | — |  |  | (40) |  |  | (195) |
Permanent differences-nondeductible executive compensation |  |  | 1,238 |  |  | 1,201 |  |  | 1,117 |
Permanent differences and other |  |  | 470 |  |  | (68) |  |  | 104 |
Effective income tax (benefit) expense |  | $ | (26,147) |  | $ | 9,877 |  | $ | 6,315 |
The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur. The following table summarizes the activity related to the Company’s unrecognized tax benefits:
|  | (in thousands) |
Balance as of December 31, 2014 |  | $ | 464 |
Increases related to current year tax positions |  |  | 5 |
Decreases due to tax positions released |  |  | (195) |
Balance as of December 31, 2015 |  |  | 274 |
Increases related to current year tax positions |  |  | 4 |
Decreases due to tax positions released |  |  | (72) |
Balance as of December 31, 2016 |  |  | 206 |
Increases related to current year tax positions |  |  | 4 |
Decreases due to tax positions expired |  |  | (19) |
Balance as of December 31, 2017 |  | $ | 191 |
No reserve was established as of December 31, 2017 and December 31, 2016 for the exposure in Europe. If the Company is able to eventually recognize these uncertain tax positions, all of the unrecognized benefit would reduce the Company’s effective tax rate. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
|  | As of December 31, |
|  | 2017 |  | 2016 |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |  |
Unearned lease revenue |  | $ | 1,754 |  | $ | 1,839 |
State taxes |  |  | 1,653 |  |  | 1,035 |
Reserves and allowances |  |  | 2,531 |  |  | 1,659 |
Other accruals |  |  | 643 |  |  | 2,501 |
Alternative minimum tax credit |  |  | — |  |  | 335 |
Foreign tax credit |  |  | 42 |  |  | 42 |
Net operating loss carry forward |  |  | 29,874 |  |  | 35,693 |
Charitable contributions |  |  | 22 |  |  | 52 |
Total deferred tax assets |  |  | 36,519 |  |  | 43,156 |
Less: valuation allowance |  |  | (806) |  |  | (1,280) |
Net deferred tax assets |  |  | 35,713 |  |  | 41,876 |
Deferred tax liabilities: |  |  |  |  |  |  |
Depreciation and impairment on aircraft engines and equipment |  |  | (114,347) |  |  | (147,827) |
Other deferred tax assets (liabilities) |  |  | 437 |  |  | 422 |
Net deferred tax liabilities |  |  | (113,910) |  |  | (147,405) |
Other comprehensive loss deferred tax asset |  |  | (83) |  |  | 551 |
Net deferred tax liabilities |  | $ | (78,280) |  | $ | (104,978) |
As of December 31, 2017, the Company had net operating loss carry forwards of approximately $138.0 million for federal tax purposes and $1.0 million for state tax purposes. The federal net operating loss carry forwards will expire at various times from 2023 to 2037 and the state net operating loss carry forwards will expire at various times from 2023 to 2037. During 2014, a valuation allowance of $1.3 million was established for the net operating losses expiring in California for the periods 2017 to 2024. The Company’s ability to utilize the net operating loss and tax credit carry forwards in the future may be subject to restriction in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax law. As of December 31, 2017, the Company included the alternative minimum tax credit of approximately $0.4 million for federal income tax purposes as a tax receivable and will recognize this credit between 2-4 years to offset future regular tax liabilities. Management believes that no valuation allowance is required on deferred tax assets related to federal net operating loss carry forwards, as it is more likely than not that all amounts are recoverable through future taxable income. The open tax years for federal and state tax purposes are from 2014-2017 and 2013-2017, respectively. The decrease in the Company’s valuation allowance is related to the increase in California’s state apportionment percentage due to the Company’s increased leases with US airlines, in particular to the 2015 spare engine support of Southwest’s fleet of Boeing 737NG aircraft. As a result of this increase, the Company is able to utilize the California net operating losses (“NOL’s”) and reduce the valuation allowance. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has calculated the impact of the Act in the year end income tax provision in accordance with management’s understanding of the Act and guidance available as of the date of this filing and as a result have recorded a $39.6 million income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was $43.6 million, which reduced the fourth quarter tax expense of $4 million to a benefit of $39.6 million.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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