Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.1
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Taxes [Abstract]  
Income Taxes 13. Income Taxes

Our provision for income taxes consists of the following (in thousands):

Year Ended December 31,

2019

2018

2017

Federal:

Current

$

8,170

$

21,594

$

35,466

Deferred

2,081

927

(42,637)

$

10,251

$

22,521

$

(7,171)

State and Other:

Current

$

2,522

$

4,857

$

4,209

Deferred

(633)

1,163

617

1,889

6,020

4,826

Total

$

12,140

$

28,541

$

(2,345)

The difference between our provision for income taxes and the results of applying the federal statutory tax rate to income before provision for income taxes relates to (in thousands):

For the Year Ended December 31,

2019

2018

2017

Income tax expense at statutory rate

$

9,868

$

24,466

$

43,484

Effect of state taxes, net of federal tax benefit

1,992

3,837

2,735

Effect of federal rate change, net of federal tax benefit

(1,005)

(47,722)

Effect of state rate changes on net deferred

liabilities

(755)

833

156

Change in valuation allowance

255

(283)

275

Non-deductible items

1,258

1,182

460

Tax credits

(478)

(489)

(1,733)

Total

$

12,140

$

28,541

$

(2,345)

Our deferred income taxes consist of the following components (in thousands):

AND

As of December 31,

2019

2018

Deferred federal and state tax liabilities (assets):

Installment sales treatment of VOI notes receivable

$

105,396

$

103,226

Deferred federal and state loss carryforwards/AMT

credits (net of valuation allowance of $2.4 million and $2.2 million

as of December 31, 2019 and 2018, respectively)

(7,915)

(7,871)

Book reserves for loan losses and inventory

(30,013)

(29,565)

Tax over book depreciation

4,786

2,343

Deferral of VOI sales and costs under timeshare accounting rules

10,398

8,654

Real estate valuation

(5,492)

(5,792)

Intangible assets

14,185

14,279

Junior subordinated debentures

9,124

9,378

Other

(7,965)

(3,596)

Deferred income taxes

$

92,504

$

91,056

Total deferred federal and state tax liabilities

$

143,889

$

137,880

Total deferred federal and state tax assets

(51,385)

(46,824)

Deferred income taxes

$

92,504

$

91,056

As of December 31, 2019, we had state operating loss carryforwards of $227.7 million, which expire from 2020 through 2039.

Internal Revenue Code Section 382 addresses limitations on the use of net operating loss carryforwards following a change in ownership, as defined in Section 382. We do not believe that any such ownership change occurred during 2019 or 2018. If our interpretation was found to be incorrect, there would be significant limitations placed on these carryforwards, which would result in an increase in our tax liability and negatively impact our results of operations.

We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With certain exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2016 for federal returns and 2015 for state returns. 

Our effective income tax rate was approximately 26%, 25% and (2%) during 2019, 2018 and 2017, respectively. On December 22, 2017, H.R.1, known as the “Tax Cuts and Jobs Act,” was signed into law. In addition to changes or limitations to certain tax deductions, the Tax Cuts and Jobs Act permanently lowered the corporate tax rate to 21% from the then current maximum rate of 35%, effective for tax years including or commenced on January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, GAAP required companies to revalue their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in continuing operations, in the reporting period of enactment. We recorded a one-time after tax benefit of approximately $47.7 million during the fourth quarter of 2017 based on a revaluation of our net deferred tax liability. During the fourth quarter of 2018, we completed our analysis of the tax effects of the Tax Cuts and Jobs Act and concluded there were no material adjustments to the provisional tax benefit recorded during the fourth quarter of 2017.

Effective income tax rates for interim periods are based upon our current estimated annual rate. Our annual effective income tax rate varies based upon the estimate of taxable earnings as well as on the mix of taxable earnings in the various states in which we operate.

We evaluate our tax positions based upon guidelines of ASC 740-10, Income Tax, which clarifies the accounting for uncertainty in tax positions. Based on an evaluation of uncertain tax provisions, we are required to measure tax benefits based on the largest amount of benefit that is greater than 50% likely of being realized upon settlement. In accordance with our accounting policy, we recognize interest and penalties related to unrecognized taxes as a component of general and administrative expenses. As of December 31, 2019, we did not recognize any interest or penalties related to ASC 740-10.

Certain of our state filings are under routine examination. While there is no assurance as to the results of these audits, we do not currently anticipate any material adjustments in connection with these examinations.

We are party to an Agreement to Allocate Consolidated Income Tax Liability and Benefits with BBX Capital and its subsidiaries pursuant to which, among other customary terms and conditions, the parties agreed to file consolidated federal tax returns. Under the agreement, the parties calculate their respective income tax liabilities and attributes as if each of them was a separate filer.  If any tax attributes are used by another party to the agreement to offset its tax liability, the party providing the benefit will receive an amount for the tax benefits realized. We paid BBX Capital or its affiliated entities $13.0 million, $23.1 million, and $39.3 million during 2019, 2018 and 2017, respectively, pursuant to the Agreement. As of December 31, 2019 and 2018, $9.0 million and $5.0 million was due to us from BBX Capital for the tax sharing agreement.