Income Taxes

12 Months Ended

Dec. 31, 2020

14. INCOME TAXES

The Company’s US and foreign pre-tax income is summarized in the table below:


Amounts in thousands	2020		2019		2018
Income before taxes:
US	$	(45,927)	$	(3,736)	$	1,329
Foreign		2,639		(8,231)		4,594
Total income before taxes	$	(43,288)	$	(11,967)	$	5,923

The Company’s provision for income taxes is summarized as follows:



	For the year ended December 31,
Amounts in thousands		2020		2019		2018
US - Current	$	270	$	316	$	682
US - Deferred		973		(199)		12
Provision for US income taxes	$	1,243	$	117	$	694

Foreign - Current	$	1,130	$	3,748	$	1,257
Foreign - Deferred		2,475		309		(34)
Provision for foreign income taxes	$	3,605	$	4,057	$	1,223
Total provision for income taxes	$	4,848	$	4,174	$	1,917

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows:


Amounts in thousands	2020	2019	2018
US federal income tax statutory rate	(21.0%)	(21.0%)	21.0%
Foreign income taxes	(2.2%)	6.8%	8.9%
State income tax (net of federal benefit)	(3.8%)	(0.3%)	0.9%
Meals, entertainment, gifts and giveaways	—	2.4%	3.1%
Statutory to US GAAP adjustments, including foreign currency	(1.8%)	3.7%	(16.0%)
Valuation allowance	41.0%	32.3%	—
Unrecognized tax benefit	—	—	1.1%
Stock options	(0.1%)	1.9%	2.5%
Tax Act impact	—	5.6%	7.0%
Permanent and other items	(0.9%)	3.5%	3.9%
Total provision for income taxes	11.2%	34.9%	32.4%

The Company’s effective income tax rate for the year ended December 31, 2020 was 11.2%. The comparison of pre-tax loss of ($43.3) million for the year ended December 31, 2020 compared to pre-tax loss of ($12.0) million for the year ended December 31, 2019 should be considered when comparing tax rates year-over-year. The Company’s overall effective tax rate was significantly driven by valuation allowances of various deferred tax assets and statutory to US GAAP adjustments, which include foreign currency adjustments for foreign subsidiaries. Approximately 60% of the income tax recorded during 2020 relates to a valuation allowance on deferred tax assets recorded in Canada, which had a 24.0% income tax rate during 2020. The federal corporate income tax rate in the United States for 2020 was 21%; additionally, the Company is subject to Colorado, Missouri and West Virginia state jurisdictions that had corporate tax rates ranging from 4.0% to 6.5% in 2020. The Company’s effective tax rate in the United States for 2020 was (2.7%), primarily due to the valuation allowance of deferred tax assets recorded during 2020, as well as other

permanent items such as nondeductible stock compensation and lobbying costs. The effective tax rate of 15.1% related to 2020 earnings in Poland, which has a 19.0% income tax rate, was due to nondeductible payments to certain governing authorities as well as nondeductible meals, entertainment, gifts and giveaways. The effective tax rate of 0.0% related to 2020 earnings in the UK, which has a 19.0% income tax rate, was due primarily to a valuation allowance and the impact of CCB’s liquidation. The effective tax rate of 15.2% related to 2020 earnings in Mauritius, which has a 3.0% income tax rate, was due to various permanent addbacks and the premeasurement of various deferred tax items using a 15.0% tax rate, which will be effective beginning for the tax year 2021. The effective tax rate of (7.9%) related to 2020 earnings in Austria, which has a 25.0% income tax rate, was due to various permanent addbacks, including the valuation allowance recorded on the Company’s deferred tax assets in Austria. The movement of exchange rates for intercompany loans denominated in US dollars further impacts the effective income tax rate because foreign currency gains and losses generally are not taxed until realized. Therefore, the overall effective income tax rate was significantly impacted in 2020 and can be significantly impacted by foreign currency gains or losses in the future.

The Tax Cuts and Jobs Act (the “Tax Act”) created requirements that certain income, such as global intangible low-taxed income (“GILTI”), earned by a controlled foreign corporation (“CFC”) must be included currently in the gross income of the CFC’s US shareholder, effective in 2018. Under US GAAP, the Company is allowed to make an accounting policy election of either (1) treating taxes due on future US inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred method”). The Company has elected to account for GILTI as a current period expense and recorded a net tax expense of $0.5 million and less than $0.1 million for the years ended December 31, 2019 and 2018, respectively. There was no net tax expense related to GILTI for the year ended December 31, 2020.

The Company records deferred tax assets and liabilities based on the difference between the financial statement and income tax basis of assets and liabilities using the enacted statutory tax rate in effect for the year these differences are expected to be taxable or reversed. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. The recorded deferred tax assets are reviewed for impairment on a quarterly basis by reviewing the Company’s internal estimates for future taxable income. The Company assesses the need for a valuation allowance based on its ability to realize the benefits of the Company’s deferred tax assets.

The Company’s deferred income taxes at December 31, 2020 and 2019 are summarized as follows:


Amounts in thousands		2020		2019
Deferred tax assets (liabilities) - US Federal and state:
Deferred tax assets
Amortization of goodwill for tax	$	8,416	$	1,243
Amortization of startup costs		13		39
Financing obligation to VICI Properties, Inc. subsidiaries		67,712		68,759
NOL carryforward		2,506		62
Operating and finance leases		488		302
Accrued liabilities and other		590		255
		79,725		70,660
Valuation allowance		(12,371)		—
	$	67,354	$	70,660
Deferred tax liabilities
Property and equipment	$	(66,677)	$	(69,164)
Operating and finance leases		(479)		(292)
Prepaid expenses		(198)		(231)
	$	(67,354)	$	(69,687)
Long-term deferred tax asset	$	—	$	973

Deferred tax assets (liabilities) - foreign
Deferred tax assets
Property and equipment	$	810	$	2,064
NOL carryforward		5,179		3,236
Accrued liabilities and other		854		734
Contingent liability		90		64
Operating and finance leases		9,583		10,498
Subsidiary liquidation		4,283
Exchange rate gain		1,236		839
		22,035		17,435
Valuation allowance		(9,261)		(3,870)
	$	12,774	$	13,565
Deferred tax liabilities
Property and equipment	$	(4,044)	$	(2,294)
Exchange rate loss		(199)		(347)
Intangibles		(1,105)		(1,083)
Operating and finance leases		(8,944)		(8,953)
Others		(495)		(428)
	$	(14,787)	$	(13,105)
Long-term deferred tax (liability) asset	$	(2,013)	$	460

In 2019, the Acquired Casinos were treated as asset acquisitions for tax purposes and the assets and liabilities were stepped up to fair value. As a result, there were limited deferred tax assets or liabilities recorded in the Acquisition.

The Company has analyzed filing positions in all of the US federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company has identified its US federal tax return, its state tax returns in Colorado, Missouri and West Virginia and its foreign tax returns in Canada and Poland as “major” tax jurisdictions, as defined by the Internal Revenue Code.

The Company is not currently under an income tax audit in any US or foreign jurisdiction. However, any adjustment made by a taxing authority in the future could impact the effective tax rate.

The Company’s income tax returns for the following periods are currently subject to examination:



Jurisdiction		Periods
US Federal		2007-2019
US State - Colorado		2007-2019
US State – Missouri		2019
US State – West Virginia		2019
Canada		2006-2019
Mauritius		2017-2019
Poland		2015-2019
Austria		2015-2019
United Kingdom		2017-2019

The Company had income tax net operating loss carryforwards related to its domestic and international operations of approximately $41.6 million as of December 31, 2020. The Company had recorded $7.7 million of deferred tax assets related to the net operating loss carryforwards, excluding the impact of the adjustments of valuation allowances and unrecognized tax benefits. The deferred tax assets expire as follows:


Amounts in thousands
2020 - 2030	$	429
2031 - 2040		4,449
No expiration		2,807
Total deferred tax assets	$	7,685

Certain net operating loss carryforwards in the Company’s filed income tax returns include unrecognized tax benefits. The deferred tax assets recognized for those net operating loss carryforwards are presented net of these unrecognized tax benefits.

As of December 31, 2020, the Company has accumulated undistributed earnings generated by its foreign subsidiaries that significantly exceed the approximately $27.5 million of cash and cash equivalents held by its foreign subsidiaries. Because substantially all of these accumulated undistributed earnings have previously been subject to the one-time transition tax on foreign earnings required by the Tax Act or have been subject to tax under the GILTI regime, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of the Company’s foreign investments would generally be limited to foreign and state taxes. The determination of the additional deferred taxes that would be provided for undistributed earnings has not been determined because the hypothetical calculation is not practicable. The Company intends, however, to indefinitely reinvest these earnings and expects its future US cash generation to be sufficient to meet its future US cash needs.

As of December 31, 2020, the Company’s unrecognized tax benefit totaled $0.8 million. The current year unrecognized tax benefit increased due to an unfavorable change in foreign exchange rates. A portion of this adjustment has been recorded as a component of taxes payable in the accompanying consolidated balance sheet as of December 31, 2020. It is not anticipated that certain tax positions will be resolved within the next 12 months, which would decrease the Company’s balance of unrecognized tax benefits. The Company may, from time to time, be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. The Company’s total amount of unrecognized tax benefit and changes to unrecognized tax benefit during the years ended December 31, 2020 and 2019 are summarized in the table below:


Amounts in thousands	2020		2019
Unrecognized tax benefit - January 1	$	821	$	820
Gross increases - tax positions in prior period		14		1
Gross decreases - tax positions in prior period		—		—
Gross increases - tax positions in current period		—		—
Settlements		—		—
Lapse of statute of limitations		—		—
Unrecognized tax benefit - December 31	$	835	$	821

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued penalties and interest of less than $0.1 million during 2020 and 2019. The $0.8 million balance of unrecognized tax benefits, if recognized, would affect the effective tax rate.

- 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.

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