9. Income Taxes

On December 22, 2017, the President of the United States signed and enacted comprehensive tax legislation into law H.R. 1, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). Except for certain provisions, the Tax Act is effective for tax years beginning on or after January 1, 2018. As a fiscal year U.S. taxpayer with an October 31 fiscal year end, the majority of the new provisions, such as eliminating the domestic manufacturing deduction, creating new taxes on certain foreign sourced income and introducing new limitations on certain business deductions, will not apply until our 2019 fiscal year. For fiscal 2018, the most significant impacts include: lowering of the U.S. federal corporate income tax rate; remeasuring certain net deferred tax assets and liabilities; and requiring the transition tax on the deemed repatriation of certain foreign earnings. We recorded $1.7 million in one-time, non-cash charges related to the revaluation of our net deferred tax assets (approx. $1.4 million) and the transition tax on the deemed repatriation of foreign earnings (approx. $0.3 million).

On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) allowing taxpayers to record a reasonable estimate of the impact of the U.S. legislation when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. In accordance with SAB 118, the estimated income tax charge of $2.3 million represents the Company’s best estimate based on interpretation of the U.S. legislation. As a result, the actual impact on the net deferred tax liability may vary from the estimated amount due to uncertainties in the Company’s preliminary review.

The Company recorded a provisional expense of approximately $0.3 million related to the one-time transition tax on the deemed repatriation of undistributed foreign earnings. The transition tax is based on the Company’s estimated total post-1986 undistributed foreign earnings at a tax rate of 15.5% for foreign cash and certain other specified assets, and 8% on the remaining earnings. The actual transition tax due will be based on actual undistributed foreign earnings and cash and certain other specified assets as of the required measurement date, which could materially affect the amount of the transition tax. Accordingly, the non-current portion of the provisional expense for the transition tax of $0.3 million, net of applicable foreign tax credits the Company expects to utilize, has been recorded in Deferred income taxes and other liabilities on the Unaudited Condensed Consolidated Balance Sheets.

Prior to the enactment of the Tax Act, the Company regularly determined certain foreign earnings to be indefinitely reinvested outside the United States. Our intent is to permanently reinvest these funds outside of the United States and our current plans do not demonstrate a need to repatriate the cash to fund our U.S. operations. However, if these funds were repatriated, we would be required to accrue and pay applicable United States taxes (if any) and withholding taxes payable to foreign tax authorities.

The income tax provision consists of the following for the years ended October 31, (in thousands):


	2018		2017		2016

Current:
Federal	$	7,115	$	14,875	$	17,244
State		1,582		2,561		2,040
Foreign		(844)		290		982
Total current		7,853		17,726		20,266

Deferred:
Federal		3,328		2,567		1,863
State		690		335		533
Foreign		848		(178)		(793)
Total deferred		4,866		2,724		1,603
Total income tax provision	$	12,719	$	20,450	$	21,869

At October 31, 2018 and 2017, gross deferred tax assets totaled approximately $19.1 million and $31.9 million, while gross deferred tax liabilities totaled approximately $14.8 million and $22.1 million. Deferred income taxes reflect the net of temporary differences between the carrying amount of assets and liabilities for financial reporting and income tax purposes.

Significant components of our deferred taxes assets (liabilities) as of October 31, are as follows (in thousands):


	2018		2017

Property, plant, and equipment		(7,715)		(7,861)
Intangible assets		13,886		24,647
Unrealized gain, Limoneira investment		(4,777)		(6,485)
Investment in FreshRealm		(1,283)		(6,808)
Stock-based compensation		899		1,154
State taxes		(690)		(805)
Credits and incentives		1,641		2,253
Allowance for accounts receivable		825		1,239
Inventories		353		322
Accrued liabilities		1,533		2,245
Other		(295)		(118)
Long-term deferred income taxes	$	4,377	$	9,783

A reconciliation of the significant differences between the federal statutory income tax rate and the effective income tax rate on pretax income for the years ended October 31, is as follows:


	2018		2017		2016

Federal statutory tax rate	23.3	%	35.0	%	35.0	%
State taxes, net of federal effects	3.6		2.9		2.9
Foreign income taxes greater than U.S.	0.7		0.1		0.7
Revaluation of deferred taxes	4.5		-		-
Section 199 deduction	(1.9)		(2.2)		(1.7)
Provision to return	(1.2)		-		-
Transition Tax	0.6		-		-
State rate change	0.2		0.3		-
Other	(1.4)		(0.7)		(0.6)
	28.4	%	35.4	%	36.3	%

For fiscal years 2018, 2017 and 2016, income before income taxes related to domestic operations was approximately $45.8 million, $57.5 million, and $61.0 million. For fiscal years 2018, 2017 and 2016, income (loss) before income taxes related to foreign operations was approximately $(1.1) million, $0.2 million and $(0.6) million.

As of October 31, 2018 and 2017, we had liability of $0.1 million and $0.7 million for unrecognized tax benefits related to various foreign income tax matters.

We are subject to U.S. federal income tax as well as income of multiple state tax and foreign tax jurisdictions. We are no longer subject to U.S. income tax examinations for the fiscal years prior to October 31, 2015, and are no longer subject to state income tax examinations for fiscal years prior to October 31, 2014.