Marcus & Millichap, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

11.

Income Taxes

The provision (loss) for income taxes consisted of the following (in thousands):


	Year Ended December 31,
	2016			2015			2014
Income (loss) before provision for income taxes:
United States	$	108,797		$	116,448		$	84,797
Foreign		(1,695	)		(3,080	)		(1,814	)

	$	107,102		$	113,368		$	82,983

The provision (benefit) for income taxes consisted of the following:
Federal:
Current	$	36,228		$	39,895		$	28,452
Deferred		(337	)		(1,853	)		(566	)

	$	35,891		$	38,042		$	27,886

State:
Current	$	6,700		$	7,058		$	4,123
Deferred		(146	)		1,918			1,443

	$	6,554		$	8,976		$	5,566

	$	42,445		$	47,018		$	33,452

Significant components of the Company’s deferred tax assets, net consisted of the following (in thousands):


	December 31,
	2016			2015
Deferred Tax Assets:
Accrued expenses and bonuses	$	1,455		$	1,787
Bad debt and other reserves		2,191			2,178
Deferred compensation		19,511			15,405
Stock-based compensation		14,978			15,984
Deferred rent		1,731			1,735
Net operating and capital loss carryforwards .		1,637			1,281
Other comprehensive income		173			382
State taxes		497			496

Deferred tax assets before valuation allowance		42,173			39,248
Valuation allowance		(1,723	)		(1,311	)

Deferred Tax Assets	$	40,450		$	37,937

Deferred Tax Liabilities:
Fixed assets	$	(3,850	)	$	(1,521	)
Prepaid expenses		(1,029	)		(1,131	)

Deferred Tax Liabilities		(4,879	)		(2,652	)

Deferred Tax Assets, Net	$	35,571		$	35,285

As of December 31, 2016 and 2015, the Company had state and Canadian net operating and capital losses (“NOLs”) of approximately $6.4 million and $5.7 million, respectively, which will begin to expire in 2019. Certain limitations may be placed on NOLs as a result of “changes in control” as defined in Section 382 of the Internal Revenue Code. In the event a change in control occurs, it will have the effect of limiting the annual usage of the carryforwards in future years. Additional changes in control in future periods could result in further limitations of the Company’s ability to offset taxable income. In addition, the utilization of these NOLs may be subject to certain limitations under state and foreign laws.

A valuation allowance is required when it is more-likely-than not that all or a portion of a deferred tax asset will not be realized. Realization of deferred tax asset is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies and reversals of existing taxable temporary differences. Management determined that as of December 31, 2016 and 2015, $1.7 million and $1.3 million, respectively, of the deferred tax assets related to state and Canadian losses do not satisfy the recognition criteria and therefore have recorded a valuation allowance for this amount. The valuation allowance for deferred tax assets was increased by $412,000, $583,000 and $442,000 during 2016, 2015 and 2014, respectively. The increases are primarily related to the Company’s Canadian operations.

The provision for income taxes differs from the amount computed by applying the statutory federal corporate income tax rate of 35% to income before provision for income taxes and consisted of the following (in thousands):


	Year Ended December 31,
	2016						2015					2014
	Amount			Rate			Amount		Rate			Amount		Rate
Income tax expense at the federal statutory rate of 35%	$	37,485			35.0	%	$	39,679		35.0	%	$	29,044		35.0	%
State income tax expense, net of federal benefit		4,346			4.1	%		4,569		4.0	%		3,622		4.4	%
Effect of state tax rate change on deferred taxes		(79	)		(0.1	)%		1,273		1.1	%		—		—
Permanent differences related to compensation charges, net of federal benefit		39			—			81		0.1	%		163		0.2	%
Change in valuation allowance		412			0.4	%		583		0.5	%		442		0.5	%
Other		242			0.2	%		833		0.8	%		181		0.2	%

	$	42,445			39.6	%	$	47,018		41.5	%	$	33,452		40.3	%

During the year ended December 31, 2016 and 2015, the Company recorded $2.7 million and $6.2 million, respectively, as a credit to additional paid-in capital in the accompanying consolidated balance sheets, in connection with windfall tax benefits associated with the settlement of DSUs/RSUs/RSAs.

As of December 31, 2016 and 2015, the Company has no liabilities for unrecognized tax benefits or any related interest or penalties in the consolidated statements of net and comprehensive income.

The Company is subject to tax in various jurisdictions and, as a matter or ordinary course, the Company is subject to income tax examinations by the federal, state and foreign taxing authorities for the tax years 2012 to 2016. The Company is not currently under income tax examination by any taxing authorities.

The Company has not provided for U.S. taxes on unremitted earnings of its foreign subsidiary as it is operating at a loss and has no earnings and profits to remit. As a result, deferred taxes were not provided related to the cumulative translation adjustments.