Income Taxes |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Income Tax Disclosure [Abstract] | |
| Income taxes |
Income Taxes
The Company calculates its interim income tax provision by applying its best estimate of the annual expected effective tax rate to its ordinary year-to-date income or loss. The tax or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.
The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes. To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the change on the prior quarters is included in the tax expense for the current quarter.
For the three months ended September 30, 2018 and September 30, 2017, the Company recorded a tax provision of $69 million and $58 million, which represented an effective tax rate of 28.5% and 25.9%, respectively. For the nine months ended September 30, 2018 and September 30, 2017, the Company recorded a tax provision of $224 million and $225 million, which represented an effective tax rate of 26.7% and 33.2%, respectively. The Tax Act, enacted in 2017, made broad and complex changes to the U.S. tax code which included a lowering of the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, changes in how foreign earnings are taxed in the U.S., the limitation on the deduction of net interest expense and other changes. The reduction in the effective tax rate for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 is a result of these changes from the Tax Act. The increase in the effective tax rate for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 is due to the impact of prior year discrete permanent differences related to foreign currency losses realized for tax purposes, partially offset by changes from the Tax Act. The 2018 rate differs from the U.S. federal income tax rate of 21% due primarily to state and foreign tax expenses. The 2017 rate differs from the U.S. federal income tax rate of 35% due primarily to the impact of the aforementioned discrete permanent differences related to foreign currency losses realized for tax purposes offset by state tax expense.
The Company files Federal tax returns on a consolidated basis with its parent company, Qurate Retail. The Company is party to ongoing discussions with the Internal Revenue Service ("IRS") under the Compliance Assurance Process audit program ("CAP"). The Company's tax years through 2014 are closed for federal income tax purposes, and the IRS has completed its examination of the Company's 2015 and 2016 tax years. The Company's 2017 and 2018 tax years are being examined currently as part of Qurate Retail's consolidated return under the IRS CAP program. The Company, or one of its subsidiaries, files income tax returns in various states and foreign jurisdictions. As of September 30, 2018, the Company, or one of its subsidiaries, was under examination in Pennsylvania.
The Company is a party to a Tax Liability Allocation and Indemnification Agreement (the “Tax Agreement”) with Qurate Retail. The Tax Agreement establishes the methodology for the calculation and payment of income taxes in connection with the consolidation of the Company with Qurate Retail for income tax purposes. Generally, the Tax Agreement provides that the Company will pay Qurate Retail an amount equal to the tax liability, if any, that it would have if it were to file as a consolidated group separate and apart from Qurate Retail, with exceptions for the treatment and timing of certain items, including but not limited to deferred intercompany transactions, credits, and net operating and capital losses. To the extent that the separate company tax expense is different from the payment terms of the Tax Agreement, the difference is recorded as either a dividend or capital contribution.
The amounts of the tax-related balances due to Qurate Retail at September 30, 2018 and December 31, 2017 were $7 million and $60 million, respectively. These amounts were included in accrued liabilities in the accompanying condensed consolidated balance sheets.
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