Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.19.1
INCOME TAXES
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
The provision for income taxes consisted of the following:
 
Year ended December 31,
 
2018

 
2017

 
2016

 
(thousands of dollars)
Current federal provision (benefit)
$
(74
)
 
$
(1,202
)
 
$
1,691

Current state provision
31

 
282

 
18

 
 
 
 
 
 
Deferred federal provision (benefit)
(974
)
 
(6,320
)
 
8,645

Deferred state provision
210

 
81

 
150

 
 
 
 
 
 
Income tax expense (benefit)
$
(807
)

$
(7,159
)

$
10,504


In connection with the AMAK share repurchase discussed in Note 10, the Company anticipates a Saudi Arabian income tax liability of approximately $802,000. This amount is included in accrued liabilities and will be paid once the transaction is complete. We had no Saudi Arabian income tax expense or liability in 2017 or 2016.
The difference between the effective tax rate in income tax expense and the Federal statutory rate of 21% for the year ended December 31, 2018, and 35% for the years ended December 31 2017 and 2016, is as follows:
 
2018

 
2017

 
2016

 
(thousands of dollars)
Income taxes at U.S. statutory rate
$
(822
)
 
$
3,885

 
$
10,476

State taxes, net of federal benefit
234

 
235

 
285

Net operating loss carryback

 
(961
)
 

Research and development credits
(263
)
 

 

Permanent and other items
44

 
(11
)
 
(257
)
Deferred tax impact of US tax reform

 
(10,307
)
 

Total tax expense (benefit)
$
(807
)

$
(7,159
)

$
10,504


Permanent differences are primarily due to the Federal manufacturer's deduction, research and development credit, and stock based compensation.
The Company has recognized the provisional tax impacts related to the acceleration of depreciation and included these amounts in its consolidated financial statements for the year ended December 31, 2018. After the analysis, the Company did not identify items for which the income tax effects of the TCJA have not been completed and a reasonable estimate could not be determined as of December 31, 2018.
The changes to existing U.S. tax laws as a result of the TCJA, which will have the most significant impact on the Company's federal income taxes are as follows:
Reduction of the U.S. Corporate Income Tax Rate - The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the TCJA, the Company revalued its ending net deferred tax liabilities at December 31, 2017.
Acceleration of Depreciation - The Company recognized a provisional reduction to net deferred tax assets attributable to the accelerated depreciation for certain assets placed into service after September 27, 2017. The provisional estimate was finalized including consideration of TCJA on long term construction projects.
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,
 
2018

 
2017

 
(thousands of dollars)
Deferred tax liabilities:
 
 
 
Plant, pipeline and equipment
$
(25,169
)
 
$
(17,014
)
Intangible assets
(1,075
)
 
(778
)
Other assets
(40
)
 
(4
)
Investment in AMAK
(671
)
 
(1,023
)
Total deferred tax liabilities
$
(26,955
)

$
(18,819
)
 
 
 
 
Deferred tax assets:
 
 
 
Accounts receivable
238

 
198

Inventory
133

 
156

Mineral interests
226

 
226

Foreign tax credit
802

 

Net operating loss carryforward
9,073

 

Post-retirement benefits
79

 
252

Stock-based compensation
954

 
971

Gross deferred tax assets
11,505


1,803

Valuation allowance
(226
)
 
(226
)
Total net deferred tax assets
$
11,279


$
1,577

Net deferred tax liabilities
$
(15,676
)

$
(17,242
)

In connection with the proceeds received from AMAK in connection with its share repurchase program, the Company accrued a deferred tax asset (foreign tax credit) and the corresponding liability for the anticipated Saudi Arabian tax.
We provided a valuation allowance in 2018 and 2017 against certain deferred tax assets because of uncertainties regarding their realization. There was no change in the valuation allowance for 2018 or 2017.
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 November 2016 on the selection of the December 31, 2014 tax return for audit. The IRS expanded its audit to include the Research and Development ("R&D") Credits for the year ended December 31, 2015. The IRS closed its audit without change in March 2018. We also received notification that Texas will audit our R&D credit calculations for 2014 and 2015. The state of Texas has suspended the audit of the Company's R&D credit. Texas is comprehensively reviewing their audit procedures for consistency. We do not expect any changes related to the Texas audits. Our federal and Texas tax returns remain open for examination for the years 2015 through 2018.
We recognized no adjustment for uncertain tax positions.  As of December 31, 2018, and 2017, no interest or penalties related to uncertain tax positions had been accrued.