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INCOME TAXES | 12 Months Ended
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Dec. 31, 2020
INCOME TAXES |
INCOME TAXES | NOTE 15—INCOME TAXES Select Inc. is subject to U.S. federal and state income taxes as a corporation. SES Holdings and its subsidiaries, with the exception of certain corporate subsidiaries, are treated as flow-through entities for U.S. federal income tax purposes and as such, are generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to their taxable income is passed through to their members or partners. Select Inc. recognizes a tax liability on its allocable share of SES Holdings’ taxable income. The Company’s effective tax rates for the years ended December 31, 2020, 2019 and 2018 were 0.4%, 32.0% and 3.0% respectively. The effective tax rates for the years ended December 31, 2020, 2019 and 2018 differ from the statutory rate of 21% for 2020, 2019 and 2018 due to net income allocated to noncontrolling interests, state income taxes and valuation allowances. The components of the federal and state income tax (benefit) expense are summarized as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the year ended
​ | ​ | December 31,
​ |  | 2020 |  | 2019 |  | 2018
​ | ​ | (in thousands)
Current tax (benefit) expense |  | ​ |  |  | ​ |  |  | ​ |
Federal income tax (benefit) expense | ​ | $ | (941) | ​ | $ | 696 | ​ | $ | 1,073
State and local income tax (benefit) expense | ​ |  | (439) | ​ |  | 1,034 | ​ |  | 1,077
Total current (benefit) expense | ​ |  | (1,380) | ​ |  | 1,730 | ​ |  | 2,150
Deferred tax (benefit) expense | ​ |  |  | ​ |  |  | ​ |  |
Federal income tax (benefit) expense | ​ |  | (105) | ​ |  | 49 | ​ |  | (20)
State and local income tax expense (benefit) | ​ |  | 9 | ​ |  | 170 | ​ |  | (426)
Total deferred (benefit) expense | ​ |  | (96) | ​ |  | 219 | ​ |  | (446)
Total income tax (benefit) expense | ​ | $ | (1,476) | ​ | $ | 1,949 | ​ | $ | 1,704
Tax (benefit) expense attributable to controlling interests | ​ | $ | (1,246) | ​ | $ | 1,488 | ​ | $ | 1,425
Tax (benefit) expense attributable to noncontrolling interests | ​ |  | (230) | ​ |  | 461 | ​ |  | 279
Total income tax (benefit) expense | ​ | $ | (1,476) | ​ | $ | 1,949 | ​ | $ | 1,704
​ A reconciliation of the Company’s provision for income taxes as reported and the amount computed by multiplying income before taxes, less noncontrolling interest, by the U.S. federal statutory rate of 21% for 2020, 2019 and 2018: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | For the year ended December 31, | ​
​ | ​ | 2020 |  | ​ | 2019 |  | ​ | 2018 | ​
​ | ​ | (in thousands) |  | ​ | ​ | ​ | ​
Provision calculated at federal statutory income tax rate: |  | ​ |  | ​ | ​ | ​ |  | ​ | ​ | ​ |  | ​
(Loss) income before taxes | ​ | $ | (403,208) | ​ | ​ | $ | 6,085 | ​ | ​ | $ | 56,003 | ​
Statutory rate | ​ |  | 21 | % | ​ |  | 21 | % | ​ |  | 21 | %
Income tax (benefit) expense computed at statutory rate | ​ |  | (84,674) | ​ | ​ |  | 1,278 | ​ | ​ |  | 11,761 | ​
Less: noncontrolling interests | ​ |  | 13,272 | ​ | ​ |  | (284) | ​ | ​ |  | (3,735) | ​
Income tax (benefit) expense attributable to controlling interests | ​ |  | (71,402) | ​ | ​ |  | 994 | ​ | ​ |  | 8,026 | ​
State and local income taxes, net of federal benefit | ​ |  | (430) | ​ | ​ |  | 884 | ​ | ​ |  | 515 | ​
Change in subsidiary tax status | ​ | ​ | (409) | ​ | ​ | ​ | 587 | ​ | ​ | ​ | — | ​
CARES Act NOL carryback benefit | ​ | ​ | (459) | ​ | ​ | ​ | — | ​ | ​ | ​ | — | ​
Change in valuation allowance | ​ |  | 71,454 | ​ | ​ |  | (1,833) | ​ | ​ |  | (7,696) | ​
Deferred adjustment due to restructuring | ​ | ​ | — | ​ | ​ | ​ | 856 | ​ | ​ | ​ | — | ​
Other | ​ | ​ | — | ​ | ​ | ​ | — | ​ | ​ | ​ | 580 | ​
Income tax (benefit) expense attributable to controlling interests | ​ |  | (1,246) | ​ | ​ |  | 1,488 | ​ | ​ |  | 1,425 | ​
Income tax (benefit) expense attributable to noncontrolling interests | ​ |  | (230) | ​ | ​ |  | 461 | ​ | ​ |  | 279 | ​
Total income tax (benefit) expense | ​ | $ | (1,476) | ​ | ​ | $ | 1,949 | ​ | ​ | $ | 1,704 | ​
​ Deferred taxes result from the temporary differences between financial reporting carrying amounts and the tax basis of existing assets and liabilities. As of December 31, 2020, and 2019, the Company had net deferred tax liabilities of $0.2 million and $0.3 million, respectively, which are recorded in other long-term liabilities on the consolidated balance sheets. The principal components of the deferred tax assets (liabilities) are summarized as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the year ended
​ | ​ | December 31,
​ |  | 2020 |  | 2019
​ | ​ | (in thousands)
Deferred tax assets |  | ​ |  |  | ​ |
Outside basis difference in SES Holdings | ​ | $ | 78,918 | ​ | $ | 27,935
Net operating losses | ​ |  | 69,601 | ​ |  | 46,782
Credits and other carryforwards | ​ |  | 4,111 | ​ |  | 1,451
Other | ​ | ​ | 541 | ​ | ​ | 944
Total deferred tax assets before valuation allowance | ​ |  | 153,171 | ​ |  | 77,112
Valuation allowance | ​ | ​ | (152,659) | ​ | ​ | (76,883)
Total deferred tax assets | ​ | ​ | 512 | ​ | ​ | 229
Deferred tax liabilities | ​ |  |  | ​ |  |
Property and equipment | ​ |  | 718 | ​ |  | 540
Other | ​ |  | 41 | ​ |  | 32
Total deferred tax liabilities | ​ |  | 759 | ​ |  | 572
Net deferred tax liabilities | ​ | $ | (247) | ​ | $ | (343)
​ For the year ended December 31, 2020, the Company recorded an increase in valuation allowance of $75.8 million against certain deferred tax assets. The Company has assessed the future potential to realize these deferred tax assets and has concluded it is more likely than not that these deferred tax assets will not be realized based on current economic conditions and expectations of the future. Furthermore, the Company has not recorded a liability for the effect of any associated Tax Receivable Agreement liabilities as the liability is based on the actual cash tax savings expected to be realized by the Company, which are not considered probable as of December 31, 2020 or 2019. The Company considers all available evidence (both positive and negative), including continuing periods of income and other tax planning strategies, in determining whether realization of the tax benefit is more likely than not. The Company will continue to monitor facts and circumstances in the reassessment of the likelihood that the tax benefit will be realized. If this were to occur, the valuation allowance, or a portion thereof, would be released. Similarly, the Company considers all available evidence (both positive and negative) in order to determine the probability of a payment under the Tax Receivable Agreements in its assessment of establishing a liability. If determined to be probable, there would be a corresponding charge to Tax Receivable Agreement expense. See Note 14—Related Party Transactions for further discussion of the Tax Receivable Agreements. The U.S. federal income tax legislation enacted in Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act, reduced the corporate income tax rate effective January 1, 2018 from 35% to 21%. As of December 31, 2018, the Company completed our accounting for the tax effects of the Tax Cuts and Jobs Act (TCJA). During the year ended December 31, 2017, the Company recognized the reasonably estimated (i) effects on our existing deferred tax balances and (ii) one-time transition tax. During the year ended December 31, 2018, the Company finalized the accounting for of the Tax Act and incurred $0.6 million in incremental income tax expense from transitioning to the TCJA. On March 27, 2020, the CARES Act was enacted. The CARES Act includes, among other things, certain income tax provisions for businesses. The Company recognized an income tax benefit of $0.5 million during 2020, as a result of the net operating loss carryback and interest expense limitation provisions of the CARES Act. As of December 31, 2020, the Company and certain corporate subsidiaries of SES Holdings had approximately $291.6 million of U.S. federal net operating loss carryforwards (“NOLs”), of which $133.8 million will begin to expire in 2031 and $157.8 million have no expiration, approximately $128.1 million of state NOLs which will begin to expire in 2023, and approximately $6.5 million of foreign NOLs, which will begin to expire in 2037. Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement methodology for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of December 31, 2020 and 2019 there was no material liability or expense for the periods then ended recorded for payments of interest and penalties associated with uncertain tax positions or material unrecognized tax positions. Separate federal and state income tax returns are filed for Select Inc., SES Holdings and certain consolidated affiliates. The tax years 2016 through 2019 remain open to examination by the major taxing jurisdictions to which the Company is subject to income tax. The Louisiana Department of Revenue is currently auditing the corporate income and franchise tax returns of Select Inc. and Select Western, a corporate subsidiary of SES Holdings, for the years ended 2016 through 2018. The Company does not believe that the audits will result in a material tax assessment.

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