Note 15 - Income Taxes

On December 22, 2017, the President of the United States signed into law the Tax Act. The Tax Act includes a number of changes to existing U.S. tax laws that impact the company, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The Tax Act also provides for the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including the repeal of the domestic manufacturing deduction and additional limitations on executive compensation.

The Company recognized the income tax effects of the Tax Act in its 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC 740, Income Taxes, in the reporting period in which the Tax Act was signed into law. The Company’s 2017 financial statements reflected estimates for the remeasurement of U.S. deferred tax balances to reflect the new U.S. corporate income tax rate. The Company’s 2017 U.S. corporate income tax return was filed in 2018 and there were no material financial statement adjustments when finalizing the accounting for the Tax Act.

The change to existing U.S. tax law as a result of the Tax Act which we believe has the most significant impact on the Company’s income tax provision is the reduction of the U.S. corporate statutory tax rate. The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent, resulting in a $2,502 increase in income tax expense for the year ended December 31, 2017 and a corresponding $2,502 decrease in net deferred tax assets as of December 31, 2017.

The (benefit) provision for income taxes for the periods indicated includes current and deferred components as follows:


	Year Ended December 31,
	2018	2017
Current taxes
Federal	$ (3)	$ (2,230)
State	156	(187)
	153	(2,417)
Deferred taxes
Federal	5,784	(4,703)
State	4,185	(1,721)
	9,969	(6,424)
Tax (benefit) expense related to a (decrease) increase in unrecognized tax benefits	-	(57)
Interest expense, gross of related tax effects	47	53
Total (benefit) provision	$ 10,169	$ (8,845)

The (provision) benefit for income taxes for the periods indicated differs from the amounts computed by applying the federal statutory rate as follows:


	Year Ended December 31,
	2018	2017
Statutory U.S. federal income tax rate	21.0%	35.0%
State income taxes, net of federal tax benefit	5.0%	3.4%
Valuation allowance	(59.7)%	0.1%
Enactment of the Tax Cuts and Jobs Act	0.0%	(8.0)%
Domestic manufacturing deduction	0.0%	(1.0)%
State rate and other changes in deferred taxes	1.0%	(1.3)%
Federal and state credits	0.1%	0.1%
Uncertain tax positions	(0.3)%	(0.3)%
Nondeductible expenses and other	(0.5)%	0.2%
Effective income tax rate	(33.4)%	28.2%

Deferred income taxes result from temporary differences in the financial and tax basis of assets and liabilities.

Components of deferred tax assets (liabilities) consisted of the following:


	December 31, 2018		December 31, 2017
Description	Assets	Liabilities	Assets	Liabilities

Accrued postretirement and pension benefits	$ 2,424	$ -	$ 2,545	$ -
Intangible assets	-	(1,653)	-	(1,669)
Accrued expenses	9,210	-	4,104	-
Deferred state and local incentive revenue	2,349	-	2,933	-
Inventory valuation	2,338	-	1,869	-
Property, plant and equipment and railcars on operating leases	-	(20,975)	-	(8,957)
Net operating loss and tax credit carryforwards	28,165	-	13,371	-
Stock-based compensation expense	1,168	-	807	-
Other	1,320	(251)	1,085	(379)
	46,974	(22,879)	26,714	(11,005)
Valuation allowance	(24,450)	-	(6,263)	-
Deferred tax assets (liabilities)	$ 22,524	$ (22,879)	$ 20,451	$ (11,005)
Increase (decrease) in valuation allowance	$ 18,187		$ 1,066

A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management has concluded that, based on evaluation of the positive and negative evidence, primarily the history of operating losses, we will not more likely than not realize the benefit of the deferred tax assets. The Company has certain pretax state net operating loss carryforwards of $132,204 which will expire between 2020 and 2037, for which a full valuation allowance has been recorded. The Company also has federal net operating loss carryforwards and federal tax credit carryforwards of $83,739 and $2,015, respectively, which will begin to expire in 2030, for which a full valuation allowance also has been recorded.

A reconciliation of the beginning and ending gross amounts of unrecognized tax benefits for the years ended December 31, 2018 and 2017, were as follows:


	2018	2017
Beginning of year balance	$ 1,383	$ 1,572
Increases in prior period tax positions	-	-
Decreases in prior period tax positions	(73)	(189)
Increases in current period tax positions	-	-
End of year balance	$ 1,310	$ 1,383

The total estimated unrecognized tax benefit that, if recognized, would affect the Company’s effective tax rate was approximately $0 and $408 as of December 31, 2018 and 2017, respectively. Due to the nature of the Company’s unrecognized tax benefits, the Company does not expect changes in its unrecognized tax benefit reserve in the next twelve months to have a material impact on its financial statements. The Company’s income tax provision included $94 of expenses (net of federal tax benefits of $11) and $106 of expense (net of federal tax benefits of $13) related to interest and penalties for the years ended December 31, 2018 and 2017, respectively. The Company records interest and penalties as a component of income tax expense. Such expenses brought the balance of accrued interest and penalties to $200 and $106 at December 31, 2018 and 2017, respectively.

The Company and/or its subsidiaries file income tax returns with the U.S. federal government and in various state and foreign jurisdictions. The Company is currently under examination of its 2015 and 2016 federal income tax returns by the Internal Revenue Service. A summary of tax years that remain subject to examination is as follows:


Jurisdiction	Earliest Year Open to Examination
U.S. Federal	2012
States:
Pennsylvania	2000
Texas	2014
Illinois	2010
Virginia	2015
Colorado	2010
Indiana	2010
Nebraska	2010
Alabama	2015
Foreign:
China	2015