Annual report pursuant to Section 13 and 15(d)

AMAK Zakat and Income Tax

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AMAK Zakat and Income Tax
 12 Months Ended
Dec. 31, 2020
Income Tax Contingency [Line Items]  
AMAK Zakat and Income Tax INCOME TAXES
On March 27, 2020, the CARES Act was enacted into law. The CARES Act allows for the deferral of income and social security tax payments, a five–year carryback for net operating losses (“NOLs”), changes to interest expense and business loss limitation rules, certain new tax credits, and certain new loans and grants to businesses. In connection with the CARES Act, we recognized $16.5 million in NOL carryback claims, of which approximately, $14.1 million was received during the fourth quarter of 2020. In connection with this claim, we received interest income of approximately $0.5 million which is included in miscellaneous income (expense). Our final refund claim for approximately $2.4 million is still outstanding and is included in taxes receivable on the consolidated balance sheet.
The provision (benefit) for income taxes from continuing operations consisted of the following:
Year ended December 31,
2020 2019 2018
(thousands of dollars)
Current federal benefit $ (19,190) $ —  $ (74)
Current state expense 86  91  31 
Deferred federal expense (benefit) 15,140  (3,564) (813)
Deferred state expense (benefit) 1  (93) 210 
Income tax expense (benefit) $ (3,963) $ (3,566) $ (646)
The difference between the year ended effective tax rate in income tax expense (benefit) and the Federal statutory rate of 21% is as follows:
2020 2019 2018
(thousands of dollars)
Income taxes at U.S. statutory rate $ 211  $ (3,455) $ (661)
State taxes, net of federal benefit 71  256  234 
Net operating loss carryback (4,655) —  — 
Research and development credits (518) (203) (263)
Permanent and other items 928  (164) 44 
Total tax expense (benefit) $ (3,963) $ (3,566) $ (646)
The significant difference in rate is primarily due to the ability of the Company under the CARES Act to carryback 2018 and 2019 NOLs to a year with a 35% income tax rate. Other permanent differences include the research and development credit, compensation limits, and stock-based compensation.
Tax effects of temporary differences that give rise to significant portions of federal and state deferred tax assets and deferred tax liabilities were as follows:
December 31,
2020 2019
(thousands of dollars)
Deferred tax liabilities:
Plant, pipeline and equipment $ (31,119) $ (29,227)
Other assets (31) (32)
Operating lease asset (2,211) (2,838)
Total deferred tax liabilities $ (33,361) $ (32,097)
Deferred tax assets:
Net operating loss carryforward —  11,685 
Intangible assets 3,396  3,699 
Operating lease liability 2,211  2,838 
Stock-based compensation 956  1,093 
Investment in AMAK —  589 
Accounts receivable 65  240 
Mineral interests 226  226 
Interest expense carryforward —  211 
General business credit —  140 
Inventory 146  111 
Post-retirement benefits 70  71 
Charitable contributions —  45 
Gross deferred tax assets 7,070  20,948 
Valuation allowance (226) (226)
Total net deferred tax assets $ 6,844  $ 20,722 
Net deferred tax liabilities $ (26,517) $ (11,375)
We provided a valuation allowance in 2020 and 2019 against certain deferred tax assets because of uncertainties regarding their realization. In connection with the sale of AMAK, the Company recorded foreign tax expense, recognized as a foreign tax credit, of approximately $1.3 million (See Note 6) during the year ended December 31, 2020.
We file an income tax return in the U.S. federal jurisdiction and a margin tax return in Texas. We received notification from the Internal Revenue Service (“IRS”) in February 2020 on the selection of our December 31, 2017 tax return for audit. All audit requests are complete and the Company is expecting to receive confirmation of the audit closing without change. In prior years, we received notification that Texas selected our R&D credit calculations for 2014 and 2015 for audit. The state of Texas had suspended their examination while they comprehensively reviewed their audit procedures for consistency. During the fourth quarter of 2019, we received notice that Texas had completed their review of their procedures and initiated additional requests for information. The Company has timely responded to all requested information. We do not expect any changes related to the Federal or Texas audits. Our federal and Texas tax returns remain open for examination for the years 2016 through 2020.
We recognized no adjustment for uncertain tax positions. As of December 31, 2020, and 2019, no interest or penalties related to uncertain tax positions had been accrued.
AMAK  
Income Tax Contingency [Line Items]  
AMAK Zakat and Income Tax Zakat and Income Tax
We have submitted our Zakat and income tax return for the year ended December 31, 2019 and have obtained our 2019 Zakat certificate. The Zakat base for the Saudi shareholders was positive in 2020, 2019 and 2018 and the corresponding Zakat expense and liability has been recorded. In 2020, 2019 and 2018, there was a taxable profit attributable to our non-Saudi (foreign) shareholders and the current income tax expense and liability has also been recorded, also included in the liability is withholding on non-Saudi shareholders for capital gains taxes in connection with the share repurchase as discussed in Note 1
The components of Zakat and income tax expense (benefit) for the nine months ended September 30, 2020 and years ended December 31, 2019 and 2018 are as follows:
2020 2019 2018
Deferred income tax expense (benefit) (3,277,217) 1,737,276  (12,961,569)
Change in valuation allowance (940,440) (1,312,403) 5,736,640 
Current Zakat and income tax expense 6,054,522  6,326,283  5,400,000 
Zakat and income tax expense (benefit) 1,836,865  6,751,156  (1,824,929)
The difference between the effective income tax rate and the statutory rate for non-Saudi shareholders of 20% for the nine months ended September 30, 2020 and the years ended December 31, 2019 and 2018 relates primarily to changes in the valuation allowance and adjustments to estimates in depreciation.
Tax effects of temporary differences that give rise to significant portions of non-Saudi owners deferred tax assets and deferred tax liabilities were as follows:
September 30, December 31,
2020 2019
Deferred tax assets:
Loss carryforward 40,645,080  41,293,547 
Other 449,302  799,526 
41,094,382  42,093,073 
Deferred tax liabilities:
Property and Equipment (4,509,734) (8,785,642)
Net deferred tax asset 36,584,648  33,307,431 
Valuation allowance (36,584,648) (37,525,089)
Net deferred tax liability —  (4,217,658)
At September 30, 2020 and December 31, 2019, we had tax loss carryforwards totaling approximately SR203,225,000 and SR206,468,000. Tax losses may be carried forward indefinitely subject to certain annual limitations for non-Saudi shareholders. We have provided a valuation allowance in 2020 and 2019 against a portion of our gross deferred tax assets because of uncertainties regarding their realization.