INCOME TAXES

Income tax expense (benefit) for the years ended

December 31,

201

2016,

and

2015

is comprised of:

(in thousands)	2017			2016			2015
Federal, current	$	(7,780	)	$	11,951		$	124
Federal, deferred		(28,055	)		(2,925	)		18,185
State, current		(1,737	)		1,811			426
State, deferred		5,430			(451	)		3,087
Actual income tax expense	$	(32,142	)	$	10,386		$	21,822

Income tax expense for t

he years ended

December 31, 2017,

2016,

and

2015

is summarized below:

(in thousands)	2017			2016			2015
Computed "expected" income tax expense	$	8,154		$	9,527		$	22,368
State income taxes, net of federal income tax effect		862			953			2,237
Per diem allowances		2,145			2,205			2,329
Tax contingency accruals		(43	)		(273	)		1,599
Valuation allowance, net		(1,167	)		-			218
Tax credits		(1,084	)		(694	)		(7,151	)
Impact of Tax Cuts and Jobs Act remeasurement		(40,123	)		-			-
Excess tax benefits on share-based compensation		(457	)		-			-
Other, net		(429	)		(1,332	)		222
Actual income tax expense	$	(32,142	)	$	10,386		$	21,822

Income tax expense varies from the amount computed by applying the

applicable federal corporate income tax rate for

2015

through

2017

35%

to income before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which is the effect of the per diem pay structure for drivers and the impacts of tax reform discussed below

. Drivers who meet the requirements to receive per diem receive non-taxable per diem pay in lieu of a portion of their taxable wages. This per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes. As a result, salaries, wages, and employee benefits are slightly lower and our effective income tax rate is higher than the statutory rate. Generally, as pre-tax income increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven, the impact of the per diem program on our effective tax rate is significant. Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future periods based on fluctuations in earnings.

December 22, 2017,

the Tax Cuts and Jobs Act

2017

(“TCJA”) was signed into law. The TCJA brought about many changes in tax law, the most significant of which was a reduction of the corporate tax rate from

35%

21%

beginning in

2018.

Other provisions impacting the Company include

100%

expensing of qualifying fixed assets, repeal of the like-kind exchange program for property other than real property, and removal of the performance-based exception on executive compensation over

million. The Company has analyzed the TCJA and recorded net benefit of

$40.1

million for the effects of these items in its

2017

income tax provision in the

fourth

quarter, the period of enactment. See further discussion below.

The temporary differences and the approximate tax effects that give rise to our net deferred tax li

ability at

December 31, 2017

and

2016

are as follows:

(in thousands)	2017			2016
Deferred tax assets:
Insurance and claims	$	8,797		$	15,147
Net operating loss carryovers		4,755			3,326
Tax credits		11,875			6,409
Other		4,414			5,113
Deferred fuel hedge		-			1,653
Valuation allowance		(63	)		(1,219	)
Total deferred tax assets		29,778			30,429

Deferred tax liabilities:
Property and equipment		(76,325	)		(98,679	)
Investment in partnership		(14,197	)		(9,730	)
Deferred fuel hedge		(99	)		-
Other		-			(1,391	)
Prepaid expenses		(2,501	)		(4,786	)
Total net deferred tax liabilities		(93,122	)		(114,586	)

Net deferred tax liability	$	(63,344	)	$	(84,157	)

The net deferred tax liability of $

63.3

million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially off-set by tax credit carryovers and insurance claims that have been reserved but

not

paid. The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we

may

be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense. On a periodic basis, we assess the need for adjustment of the valuation allowance. Based on forecasted taxable income resulting from the reversal of deferred tax liabilities, primarily generated by accelerated depreciation for tax purposes in prior periods, and tax planning strategies available to us,

valuation allowance has been established at

December 31, 2017

2016,

except for

$0.1

million and

$1.2

million at

December 31, 2017

and

2016,

respectively, related to certain state net operating loss carry forwards. If these estimates and related assumptions change in the future, we

may

be required to modify our valuation allowance against the carrying value of the deferred tax assets.

As of

December 31, 2017,

we had a $

2.8

million liability recorded for unrecognized tax benefits, which includes interest and penalties of

$0.8

million. We recognize interest and penalties accrued related to unrecognized tax benefits in tax expense. As of

December 31, 2016,

we had a

$2.8

million liability recorded for unrecognized tax benefits, which included interest and penalties of

$0.8

million. Interest and penalties recognized for uncertain tax positions provided for a

$0.1

million benefit,

$0.1

million expense, and a

$0.2

million benefit in each of

2017,

2016,

and

2015

respectively.

The following tables summarize the annual activity related to our gross unrecognized tax benefits (in thousands) for the years ended

December 31, 2017,

2016,

and

2015:

	2017			2016			2015
Balance as of January 1,	$	2,051		$	2,394		$	995
Increases related to prior year tax positions		19			-			1,737
Decreases related to prior year positions		(10	)		-			-
Increases related to current year tax positions		-			-			-
Decreases related to settlements with taxing authorities		-			(88	)		(182	)
Decreases related to lapsing of statute of limitations		(136	)		(255	)		(156	)
Balance as of December 31,	$	1,924		$	2,051		$	2,394

If recognized, $

2.5

million and

$2.4

million of unrecognized tax benefits would impact our effective tax rate as of

December 31, 2017

and

2016,

respectively. Any prospective adjustments to our reserves for income taxes will be recorded as an increase or decrease to our provision for income taxes and would impact our effective tax rate.

Our

2014

through

2017

tax years remain subject to examination by the IRS for U.S. federal tax purposes, our major taxing jurisdiction. We have

one

tax position taken on our

2013

federal return that is under audit by the Internal Revenue Service. This position relates to a non-recurring tax credit of approximately

$6.5

million

. In the normal course of business, we are also subject to audits by state and local tax authorities.

While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our reserves reflect the more likely than

not

outcome of known tax contingencies. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution. We do

not

expect any significant increases or decreases for uncertain income tax positions during the next year.

Our federal tax credits of $

10.5

million, along with a federal alternative minimum tax credit carryforward of

$1.0

million are available to offset future federal taxable income, if any, through

2037,

while our state net operating loss carryforwards and state tax credits of

$91.1

million and

$0.5

million, respectively expire over various periods through

2037

based on jurisdiction.

December 31, 2017,

we have

not

completed our accounting for the tax effects of the enactment of the TCJA; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances.

There were

aspects of the TCJA that impacted

2017

for which we were unable to make a reasonable estimate. We recognized a provisional benefit amount of

$40.1

million, which is included as a component of income tax expense from continuing operations. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates

may

also be affected as we gain a more thorough understanding of the tax law on a federal and state basis.

Provisional Amounts

Deferred tax assets and liabilities: We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally

21%.

However, we are still analyzing certain aspects of the TCJA and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount is also subject to change based on how states conform to the TCJA, as that information is

not

readily available for many states at this time. In addition to adjusting the rate applied to deferred tax balances, we also analyzed the future deductibility of restricted stock awards for executives and computed the effects of an NOL carryback to benefit the loss at

35%

in prior years. The provisional amount recorded related to the remeasurement of our deferred tax bala

nce was a net benefit of

$40.1

million.