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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes For federal income tax purposes, we elected to be taxed as a REIT under the Internal Revenue Code. To qualify as a REIT, we must meet certain organizational and operational stipulations, including a requirement that we distribute at least 90% of our REIT taxable income, excluding net capital gains, to our stockholders. We currently intend to adhere to these requirements and maintain our REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes as well as to federal income and excise taxes on our undistributed taxable income. At December 31, 2018, eleven of our hotel properties were leased to TRS lessees TRS and the Ritz-Carlton, St. Thomas hotel was owned by our USVI TRS. The TRS entities recognized net book income before income taxes of $16.4 million, $27,000 and $5.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. The following table reconciles the income tax expense at statutory rates to the actual income tax expense recorded (in thousands):
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
Income tax (expense) benefit at federal statutory income tax rate of 21% in 2018 and 35% in 2017 and 2016 | $ | (3,452 | ) |  | $ | 10 |  |  | $ | (1,928 | )
State income tax (expense) benefit, net of federal income tax benefit | (248 | ) |  | (100 | ) |  | (172 | )
Revaluation of deferred tax assets and liabilities related to the 2017 Tax Act(1) | — |  |  | (10,974 | ) |  | — |
State and local income tax (expense) benefit on pass-through entity subsidiaries | (64 | ) |  | (87 | ) |  | (62 | )
Gross receipts and margin taxes | (100 | ) |  | (143 | ) |  | (98 | )
Benefit of USVI Economic Development Commission credit | 950 |  |  | 181 |  |  | 619 |
Other | (311 | ) |  | 89 |  |  | 58 |
Valuation allowance | 793 |  |  | 11,546 |  |  | 9 |
Total income tax (expense) benefit | $ | (2,432 | ) |  | $ | 522 |  |  | $ | (1,574 | )
________ (1) Partially offset within change in valuation allowance. The components of income tax expense are as follows (in thousands):
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |
Federal | $ | (2,536 | ) |  | $ | 1,354 |  |  | $ | (231 | )
State | (703 | ) |  | (217 | ) |  | (269 | )
Foreign | — |  |  | — |  |  | 15 |
Total current income tax (expense) benefit | (3,239 | ) |  | 1,137 |  |  | (485 | )
Deferred: |  |  |  |  |
Federal | (80 | ) |  | (461 | ) |  | (1,049 | )
State | 887 |  |  | (154 | ) |  | (40 | )
Total deferred income tax (expense) benefit | 807 |  |  | (615 | ) |  | (1,089 | )
Total income tax (expense) benefit | $ | (2,432 | ) |  | $ | 522 |  |  | $ | (1,574 | )
For the years ended December 31, 2018, 2017 and 2016, income tax expense included interest and penalties paid to taxing authorities of $18, $7 and $0, respectively. At December 31, 2018 and 2017, we determined that there were no amounts to accrue for interest and penalties due to taxing authorities. At December 31, 2018 and 2017, our net deferred tax asset, included in “other assets,” and net deferred tax liability, included in “accounts payable and accrued expenses,” respectively, on our consolidated balance sheets, consisted of the following (in thousands):
| December 31,
| 2018 |  | 2017
Deferred tax assets: |  |  |
Tax intangibles basis greater than book basis | $ | 828 |  |  | $ | 957 |
Allowance for doubtful accounts | 25 |  |  | 20 |
Unearned income | 225 |  |  | 54 |
Unfavorable management contract liability | — |  |  | — |
Federal and state net operating losses | 13,526 |  |  | 13,911 |
Other | 101 |  |  | 28 |
Accrued expenses | 511 |  |  | 336 |
Tax property basis greater than book basis | 1,320 |  |  | 1,381 |
Prepaid expenses | (2,360 | ) |  | (2,379 | )
Net deferred tax asset | 14,176 |  |  | 14,308 |
Valuation allowance | (14,483 | ) |  | (15,422 | )
Net deferred tax asset (liability) | $ | (307 | ) |  | $ | (1,114 | )
At December 31, 2018 and 2017, we recorded a valuation allowance of $14.5 million and $15.4 million, respectively, to partially reserve the deferred tax assets of our TRSs. Primarily as a result of the limitation imposed by the Internal Revenue Code on the utilization of net operating losses of acquired subsidiaries and the history of losses of our USVI TRS, we believe it is more likely than not that $14.5 million of our deferred tax assets will not be realized, and therefore, have provided a valuation allowance to reserve against the balances. At December 31, 2018, the TRSs had net operating loss carryforwards for federal income tax purposes of $54.0 million that are available to offset future taxable income, if any. $52.1 million of net operating loss carryforwards is attributable to acquired subsidiaries and is subject to substantial limitation on its use. We do not recognize deferred tax assets and a valuation allowance for the REIT since the REIT distributes its taxable income as dividends to stockholders, and in turn, the stockholders incur income taxes on those dividends. The following table summarizes the changes in the valuation allowance (in thousands):
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
Balance at beginning of year | $ | 15,422 |  |  | $ | 26,968 |  |  | $ | 27,022 |
Additions | — |  |  | 104 |  |  | 31 |
Deductions | (939 | ) |  | (11,650 | ) |  | (85 | )
Balance at end of year | $ | 14,483 |  |  | $ | 15,422 |  |  | $ | 26,968 |
The USVI TRS operates under a tax holiday in the U.S. Virgin Islands, which is effective through December 31, 2028, and may be extended if certain additional requirements are satisfied. The tax holiday is conditional upon our meeting certain employment and investment thresholds. The impact of this tax holiday decreased current foreign taxes by $40,000, $20,000 and $126,000 for the years ended December 31, 2018, 2017 and 2016, respectively. The benefit of the tax holiday on net income (loss) per share was approximately, $0.00, $0.00 and $0.01 for the years ended December 31, 2018, 2017 and 2016, respectively. On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (“Tax Reform”) into legislation. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. In the case of U.S. federal income taxes, the enactment date is the date the bill becomes law (i.e., upon presidential signature). With respect to this legislation, in December of 2017, we recorded a one-time tax benefit of approximately $216,000, due to a revaluation of our net deferred tax liabilities resulting from the decrease in the corporate federal income tax rate from 35% to 21%. Additionally, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. As of December 31, 2018, we have finalized our accounting for Tax Reform and concluded that no material adjustments were required.

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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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