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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
INCOME TAXES |
INCOME TAXES | NOTE 7: INCOME TAXES The Tax Cuts and Jobs Act (“the Act”), effective January 1, 2018, included a reduction to the US federal tax rate from 35 percent to 21 percent, adjustment of deferred tax assets and liabilities for the new corporate income tax rate, and adjustments to deductible compensation of our executive officers. Included among other international provisions, the Act provides for a deduction on certain qualifying income related to export sales of property or services referred to as Foreign Derived Intangible Income (“FDII”), and the elimination of the US manufacturing deduction. In 2017, and the first nine months of 2018, the Company recorded provisional amounts for certain enactment-date effects of the Act by applying the guidance in SAB 118. In 2017, the Company recorded tax expense of $1.7 million related to the enactment-date effects of the Act that included adjusting deferred tax assets and liabilities for the new corporate income tax rate as well as accounting for the effects on executive compensation arrangements. In 2018, the Company adjusted the enactment-date provisional amounts by decreasing tax expense by $0.1 million. These adjustments were recorded as components of income tax expense from continuing operations. The Company applied the guidance in SAB 118 when accounting for the enactment-date effects of the Act in 2017 and throughout 2018 and as of December 31, 2018, has completed its accounting for all of the enactment-date income tax effects of the Act. As of December 31, 2018, the Company has analyzed the provisions of the Act that have been in effect from January 1, 2018 forward and incorporated its best estimates of these provisions, within the annual effective tax rate for 2018. Additionally, the Company estimated a tax benefit associated with FDII of $128 thousand, which has been reflected in the 2018 tax expense. The FDII benefit is based on current guidance and is subject to change, based upon future guidance being issued, in addition to the refinement of the calculations to be completed in connection with the filing of the Company’s 2018 US federal income tax return. The following table lists the components of the provision for income taxes:
Years ended December 31, |  | 2018 |  |  | 2017 |  |  | 2016 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Current provision: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 6,173 |  |  | $ | 8,623 |  |  | $ | 7,263 |
State |  |  | 616 |  |  |  | 546 |  |  |  | 261 |
Deferred (benefit) provision: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 384 |  |  |  | 1,511 |  |  |  | (507 | )
State |  |  | (6 | ) |  |  | 8 |  |  |  | (355 | )
Total income tax provision |  | $ | 7,167 |  |  | $ | 10,688 |  |  | $ | 6,662 |
A reconciliation between the federal statutory rate and Marine Products’ effective tax rate is as follows:
Years ended December 31, |  | 2018 |  |  | 2017 |  |  | 2016 |
Federal statutory rate |  |  | 21.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | 1.5 |  |  |  | 1.1 |  |  |  | 0.7 |
Research and experimentation credit |  |  | (0.8 | ) |  |  | (0.8 | ) |  |  | (1.0 | )
Tax-exempt interest |  |  | (0.1 | ) |  |  | (0.2 | ) |  |  | (0.4 | )
Tax-exempt loss (gain) on SERP assets |  |  | 0.3 |  |  |  | (0.6 | ) |  |  | (1.3 | )
Manufacturing deduction |  |  | — |  |  |  | (3.0 | ) |  |  | (3.0 | )
FDII deduction |  |  | (0.4 | ) |  |  | — |  |  |  | — |
Change in valuation allowance |  |  | (0.1 | ) |  |  | (0.1 | ) |  |  | (1.4 | )
Adjustments related to the Act |  |  | (0.3 | ) |  |  | 5.6 |  |  |  | — |
Adjustments related to vesting of restricted stock |  |  | (1.8 | ) |  |  | (2.4 | ) |  |  | — |
Other |  |  | 0.8 |  |  |  | 1.0 |  |  |  | (0.1 | )
Effective tax rate |  |  | 20.1 | % |  |  | 35.6 | % |  |  | 28.5 | %
Significant components of the Company’s deferred tax assets and liabilities are as follows:
December 31, |  | 2018 |  |  | 2017 |
(in thousands) |  |  |  |  |  |  |  |
Deferred tax assets: |  |  |  |  |  |  |  |
Warranty costs |  | $ | 1,233 |  |  | $ | 1,182 |
Sales incentives and discounts |  |  | 317 |  |  |  | 348 |
Stock-based compensation |  |  | 667 |  |  |  | 611 |
Pension |  |  | 1,337 |  |  |  | 1,406 |
Uniform capitalization |  |  | 44 |  |  |  | 47 |
All others |  |  | 515 |  |  |  | 479 |
State credits and NOL’s |  |  | 3,382 |  |  |  | 6,124 |
Valuation allowance |  |  | (2,794 | ) |  |  | (5,447 | )
Total deferred tax assets |  |  | 4,701 |  |  |  | 4,750 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation and amortization expense |  |  | (1,009 | ) |  |  | (781 | )
Basis differences in joint venture |  |  | (367 | ) |  |  | (320 | )
Net deferred tax assets |  | $ | 3,325 |  |  | $ | 3,649 |
Total net income tax payments were $6,290,000 in 2018, $9,733,000 in 2017, and $6,546,000 in 2016. As of December 31, 2018, the Company had net operating loss carry forwards related to state income taxes of approximately $12.3 million and other state credits of approximately $3.5 million (gross) that will expire between 2020 and 2036. The Company does not have a valuation allowance 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, at this time, 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, 2018 and 2017. During 2018, 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:
|  | 2018 |  |  | 2017 |
Balance at January 1 |  | $ | 243,000 |  |  | $ | 15,000 |
Additions based on tax positions related to the current year |  |  | 81,000 |  |  |  | 12,000 |
Additions for tax positions of prior years |  |  | 69,000 |  |  |  | 216,000 |
Balance at December 31 |  | $ | 393,000 |  |  | $ | 243,000 |
It is reasonably possible that the amount of the unrecognized benefits with respect to the Company’s 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, the uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities. The Company’s 2015 through 2018 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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