8.	INCOME TAXES

Income tax expense (benefit) for the years ended

December 31,

2019,

2018,

and

2017

is comprised of:

(in thousands)	2019			2018			2017
Federal, current	$	(1,174	)	$	-		$	(7,780	)
Federal, deferred		3,976			14,117			(28,055	)
State, current		1,077			1,410			(1,737	)
State, deferred		(415	)		(20	)		5,430
Income tax expense (benefit)	$	3,464		$	15,507		$	(32,142	)

Income tax expense (benefit) for the years ended

December 31,

2019,

2018,

and

2017

is summarized below:

(in thousands)	2019			2018			2017
Computed "expected" income tax expense	$	2,508		$	12,182		$	8,154
State income taxes, net of federal income tax effect		(351	)		2,610			862
831(b) election		(393	)		(200	)		(290	)
Per diem allowances		1,450			1,446			2,145
Tax contingency accruals		601			(57	)		(43	)
Valuation allowance, net		321			-			(1,167	)
Tax credits		(377	)		(968	)		(1,352	)
Impact of Tax Act remeasurement		-			-			(40,123	)
Excess tax benefits on share-based compensation		105			50			(457	)
Change in prior year estimates		(420	)		-			-
Other, net		20			444			129
Income tax expense (benefit)	$	3,464		$	15,507		$	(32,142	)

Income tax expense varies from the amount computed by applying the applicable federal corporate income tax rate of

for

2019

and

2018

and of

35%

for

2017

, 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.

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

December 31, 2019

and

2018

are as follows:

(in thousands)	2019			2018
Deferred tax assets:
Insurance and claims	$	10,269		$	9,593
Net operating loss carryovers		25,849			10,260
Tax credits		10,942			11,985
Leased liability		15,668			-
Capital lease obligation		8,483			-
State bonus		6,576			5,938
Other		2,160			2,412
Valuation allowance		(385	)		(63	)
Total deferred tax assets		79,562			40,125

Deferred tax liabilities:
Property and equipment		(97,066	)		(87,939	)
Investment in partnership		(36,669	)		(26,066	)
Deferred fuel hedge		-			(73	)
ROU Asset- leases		(15,280	)		-
Other		(449	)		(569	)
Sec. 481(a) - capital leases		(7,462	)		-
Prepaid expenses		(2,966	)		(2,945	)
Total deferred tax liabilities		(159,892	)		(117,592	)

Net deferred tax liability	$	(80,330	)	$	(77,467	)

The net deferred tax liability of

$80.3

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, a valuation allowance has been established at

December 31, 2019

of approximately

$0.4

million 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, 2019

, we had a

$0.9

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

$0.1

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

December 31, 2018

, we had a

$2.7

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

$0.9

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

$0.1

million expense in

2018

and a

$0.8

million and

$0.1

million benefit in

2019

and

2017

, respectively.

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

December 31,

2019,

2018,

and

2017

	2019			2018			2017
Balance as of January 1,	$	1,796		$	1,924		$	2,051
Increases related to prior year tax positions		2,969			4			19
Decreases related to prior year positions		-			(9	)		(10	)
Increases related to current year tax positions		287			-			-
Decreases related to settlements with taxing authorities		(4,200	)		-			-
Decreases related to lapsing of statute of limitations		(29	)		(123	)		(136	)
Balance as of December 31,	$	823		$	1,796		$	1,924

If recognized, approximately

$0.9

million and

$2.5

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

December 31, 2019

and

2018

. 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

2015

through

2018

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

December 31, 2019,

the

2013

audit was settled and the resulting adjustments have been recorded in the

2019

financial statements. 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. The charitable contributions will begin expiring in

2022.

Our federal net operating loss of

$103.9

million is available to offset future federal taxable income, if any, of which

$1.4

million will expire in

2037,

with the remaining loss of

$102.5

million with indefinite life. In addition to the federal net operating losses, we also have

$10.4

million of federal tax credits plus

$2.1

million of charitable contributions which will begin to expire in

2028

and

2022,

respectively.

Our federal tax credits of

$10.4

million are available to offset future federal taxable income, which will begin to expire in

2028.

We have a federal alternative minimum tax credit carryforward of

$1.2

million that, under the Tax Act, will be fully refunded by

2021.

Our state net operating loss carryforwards and state tax credits of

$115.7

million and

$0.6

million, respectively expire beginning in

2021

and

2029

based on jurisdiction.