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INCOME TAXES | 12 Months Ended
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Dec. 31, 2017
INCOME TAXES |
INCOME TAXES | NOTE 6: INCOME TAXES On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (“the Act”), which took effect on January 1, 2018. Some notable provisions of the Act include a reduction of the corporate income tax rate from 35 percent to 21 percent, a one-time transition tax on un-repatriated foreign earnings and profits, adjustments to deductible compensation paid to our executive officers, and 100 percent bonus depreciation on capital expenditures. Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted. As a result, as of December 31, 2017, the Company recorded a discrete tax provision adjustment of $1.7 million from revaluing the Company’s net deferred tax assets. The Company did not record any adjustments related to un-repatriated foreign earnings and profits because the Company is primarily U.S. based and has no significant foreign entities or activities. We believe that the adjustments resulting from these components of the Act are complete as of December 31, 2017. However, the Company has not completed its accounting for the income tax effects of the Act as it pertains to the deduction for executive compensation, including the impact for compensation that is paid pursuant to a binding contract that would have been deductible under the prior rules. Due to the complexity of this provision, additional time is needed to further analyze our executive compensation program, exceptions under the binding contract rule, the impact of vesting of restricted stock grants, dividends, and bonuses. The ultimate impact of the Act may differ from the recorded amounts due to changes in our interpretations and assumptions, as well as additional regulatory guidance that may be issued. We expect to complete the accounting for tax reform with the completion of our 2017 Federal income tax return, expected to be complete by the third quarter 2018. Also in 2017, the Company adopted the amendments of ASU 2016-09 that required excess tax benefits and deficiencies related to the vesting of restricted stock to be recognized as a component of income tax expense rather than in equity. This resulted in a beneficial discrete adjustment of approximately $718 thousand to the provision for income taxes in 2017. The following table lists the components of the provision for income taxes:
Years ended December 31, |  | 2017 |  |  | 2016 |  |  | 2015 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Current provision: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 8,623 |  |  | $ | 7,263 |  |  | $ | 5,056 |
State |  |  | 546 |  |  |  | 261 |  |  |  | 300 |
Deferred (benefit) provision: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 1,511 |  |  |  | (507 | ) |  |  | 1,256 |
State |  |  | 8 |  |  |  | (355 | ) |  |  | 53 |
Total income tax provision |  | $ | 10,688 |  |  | $ | 6,662 |  |  | $ | 6,665 |
A reconciliation between the federal statutory rate and Marine Products’ effective tax rate is as follows:
Years ended December 31, |  | 2017 |  |  | 2016 |  |  | 2015 |
Federal statutory rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | 1.1 |  |  |  | 0.7 |  |  |  | 0.8 |
Research and experimentation credit |  |  | (0.8 | ) |  |  | (1.0 | ) |  |  | (1.1 | )
Tax-exempt interest |  |  | (0.2 | ) |  |  | (0.4 | ) |  |  | (0.4 | )
Tax-exempt gain on SERP assets |  |  | (0.6 | ) |  |  | (1.3 | ) |  |  | (0.1 | )
Manufacturing deduction |  |  | (3.0 | ) |  |  | (3.0 | ) |  |  | (2.5 | )
Change in valuation allowance |  |  | (0.1 | ) |  |  | (1.4 | ) |  |  | — |
Adjustments related to the Act |  |  | 5.6 |  |  |  | — |  |  |  | — |
Adjustments related to vesting of restricted stock |  |  | (2.4 | ) |  |  | — |  |  |  | — |
Other |  |  | 1.0 |  |  |  | (0.1 | ) |  |  | — |
Effective tax rate |  |  | 35.6 | % |  |  | 28.5 | % |  |  | 31.7 | %
Significant components of the Company’s deferred tax assets and liabilities are as follows:
December 31, |  | 2017 |  |  | 2016 |
(in thousands) |  |  |  |  |  |  |  |
Deferred tax assets: |  |  |  |  |  |  |  |
Warranty costs |  | $ | 1,182 |  |  | $ | 1,643 |
Sales incentives and discounts |  |  | 348 |  |  |  | 725 |
Stock-based compensation |  |  | 611 |  |  |  | 1,015 |
Pension |  |  | 1,406 |  |  |  | 1,993 |
Uniform capitalization |  |  | 47 |  |  |  | 298 |
All others |  |  | 479 |  |  |  | 489 |
State credits and NOL’s |  |  | 6,124 |  |  |  | 5,129 |
Valuation allowance |  |  | (5,447 | ) |  |  | (4,525 | )
Total deferred tax assets |  |  | 4,750 |  |  |  | 6,767 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation and amortization expense |  |  | (781 | ) |  |  | (1,103 | )
Basis differences in joint venture |  |  | (320 | ) |  |  | (386 | )
Net deferred tax assets |  | $ | 3,649 |  |  | $ | 5,278 |
Total net income tax payments were $9,733,000 in 2017, $6,546,000 in 2016, and $5,797,000 in 2015. As of December 31, 2017, the Company had net operating loss carry forwards related to state income taxes of approximately $14.3 million and other state credits of approximately $6.9 million (gross) that will expire between 2018 and 2035. In 2016, the Company released all valuation allowances related to net operating loss carryforwards due to implemented tax planning strategies. The Company has a valuation allowance against the corresponding deferred tax asset on all state tax credits because the Company does not expect to utilize them. The Company’s policy is to record interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties were immaterial as of December 31, 2017 and 2016. During 2017, the Company recognized an increase in its liability for unrecognized tax benefits related primarily to state income taxes, settlements, and voluntary disclosure agreements. The liability, if recognized, would affect our effective rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | 2017 |  |  | 2016 |
Balance at January 1 |  | $ | 15,000 |  |  | $ | 15,000 |
Additions based on tax positions related to the current year |  |  | 12,000 |  |  |  | — |
Additions for tax positions of prior years |  |  | 216,000 |  |  |  | — |
Balance at December 31 |  | $ | 243,000 |  |  | $ | 15,000 |
It is reasonably possible that the amount of the unrecognized benefits with respect to our unrecognized tax positions will increase or decrease in the next 12 months. These changes may be the result of, among other things, state tax settlements under voluntary disclosure agreements. However, quantification of an estimated range cannot be made at this time. The Company and its subsidiaries are subject to U.S. federal and state income tax in multiple jurisdictions. In many cases our uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities. The Company’s 2014 through 2017 tax years remain open to examination. Additional years may be open to the extent attributes are being carried forward to an open year.

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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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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