|12 Months Ended|
Dec. 31, 2017
|Income Tax Disclosure [Abstract]|
Components of income tax expense are as follows (in thousands):
Income taxes differ for the years ended December 31, 2017, 2016 and 2015, from the amounts computed using the expected federal statutory income tax rate of 35% as a result of the following (in thousands):
The effective tax rate was 42.1%, 31.4%, and 32.1% for 2017, 2016 and 2015, respectively. Our 2016 and 2015 tax rates were favorably impacted by both the homebuilder manufacturing deduction and energy tax credits. The effective tax rate for 2017 was favorably impacted by the homebuilder manufacturing deduction and to a lesser extent additional energy tax credits obtained by qualifying more homes from open prior tax years. These were offset by an unfavorable impact to the 2017 effective tax rate from the revaluation of deferred tax balances due to the Tax Act.
Deferred tax assets and liabilities are netted on our balance sheet by tax jurisdiction. Net overall tax assets for all jurisdictions are grouped and included as a separate asset. Net overall deferred tax liabilities for all jurisdictions are grouped and included in other liabilities. At December 31, 2017, we have a net deferred tax asset of $35.2 million. We also have net deferred tax liabilities of $4.2 million. Deferred tax assets and liabilities are comprised of timing differences (in thousands) as follows:
At December 31, 2017 and December 31, 2016, we have no unrecognized tax benefits due to the lapse of the statute of limitations and completion of audits for prior years. We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change. Our policy is to accrue interest and penalties on unrecognized tax benefits and include them in federal income tax expense.
We determine our deferred tax assets and liabilities in accordance with ASC 740-10, Income Taxes ("ASC 740"). We evaluate our deferred tax assets, including the benefit from NOLs, by jurisdiction to determine if a valuation allowance is required. Companies must assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, experiences with operating losses and experiences of utilizing tax credit carryforwards and tax planning alternatives. We have no valuation allowance on our deferred tax assets and NOL carryovers at December 31, 2017.
On December 22, 2017, the President signed into law the Tax Act. Under ASC 740, the effects of new legislation are recognized in the period that includes the date of enactment. The estimated impact on 2017 was to reduce the value of our deferred tax asset by $19.7 million and has been reflected in our effective tax rate reconciliation. The disclosed impact is our most reasonable estimate at this time based on our understanding of the Tax Act as it applies to our business and may change as more information becomes available.
Our future NOL and deferred tax asset realization depends on sufficient taxable income in the carryforward periods under existing tax laws. Federal NOL carryforwards may be used to offset future taxable income for 20 years. State NOL carryforwards may be used to offset future taxable income for a period of time ranging from 5 to 20 years, depending on the state jurisdiction. At December 31, 2017, we had no remaining un-utilized federal NOL carryforward or federal tax credits. At December 31, 2017, we had tax benefits for state NOL carryforwards of $1.8 million that begin to expire in 2028.
At December 31, 2017, we have income taxes payable of $7.2 million, which primarily consists of current federal and state tax accruals, net of estimated tax payments. This amount is recorded in Accrued liabilities in the accompanying balance sheet at December 31, 2017.
We conduct business and are subject to tax in the U.S. and several states. With few exceptions, we are no longer subject to U.S. federal, state, or local income tax examinations by taxing authorities for years prior to 2013. We have one state income tax examination covering various years pending resolution at this time.
The tax benefits from NOLs, built-in losses, and tax credits would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under Internal Revenue Code (“IRC”) §382. Based on our analysis performed as of December 31, 2017 we do not believe that we have experienced an ownership change. As a protective measure, our stockholders held a Special Meeting of Stockholders on February 16, 2009 and approved an amendment to our Articles of Incorporation that restricts certain transfers of our common stock. The amendment is intended to help us avoid an unintended ownership change and thereby preserve the value of any tax benefit for future utilization.
On December 18, 2015, Congress passed the Protecting Americans from Tax Hikes ("PATH") Act of 2015 which the President signed into law. The PATH Act extended the availability of the IRC §45L new energy efficient homes credit through the end of 2016. Under ASC 740, the effects of new legislation are recognized in the period that includes the date of enactment, regardless of the retroactive benefit. In accordance with this guidance, we recorded tax effected benefits based on estimates for qualifying new energy efficient homes that we closed in 2015 and 2016. The estimated tax effected benefits as adjusted for actual experience are reflected in our effective tax rate reconciliation as the benefit from federal tax credits. See Note 17 for additional information related to IRC §45L tax credits subsequent to year-end.
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.
Reference 1: http://www.xbrl.org/2003/role/presentationRef