|9 Months Ended|
Sep. 30, 2019
|Income Tax Disclosure [Abstract]|
The Company’s interim income tax provision or benefit consists of U.S. federal and state income taxes based on the estimated annual effective rate that the Company expects for the full year together with the tax effect of discrete items. Each quarter, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. As of September 30, 2019, the estimated annual effective tax rate for 2019 (exclusive of discrete items) is approximately 28% of projected pre-tax income. Our estimated annual tax expense consists of a provision for federal and state and local income taxes.
For the three and nine months ended September 30, 2019, the Company recorded an income tax expense of $4,020 on pre-tax income of $15,297 and an income tax expense of $7,421 on a pre-tax income of $29,638. The estimated annual effective tax rate is higher than the statutory rate of 21% related primarily to state and local taxes and certain non-deductible expenses including meals and entertainment and IRC §162(m).
For the three and nine months ended September 30, 2018, the Company recorded an income tax expense of $3,207 on a pre-tax income of $12,657 and an income tax expense of $9,953 on a pre-tax income of $34,177.
In assessing the realizability of deferred tax assets, we evaluate whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized.
We assess all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, prior earnings history, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Significant weight is given to positive and negative evidence that is objectively verifiable. As of September 30, 2019, the Company concluded that its deferred tax assets were realizable on a more-likely-than-not basis with the exception of certain separate company state net operating losses.
On January 1, 2018, the Company adopted ASC 606. Upon adoption, the Company recorded a net deferred tax liability of $3,600 with an offset to retained earnings. During the fourth quarter of 2018, the Company determined that the deferred tax liability recorded on adoption of ASC 606 with respect to Highland was overstated, and the Company made an additional retained earnings adjustment of $665 to correct this item as of January 1, 2018. As such, the net deferred tax liability related to ASC 606 is $2,935.
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://fasb.org/us-gaap/role/ref/legacyRef