Income Taxes and Tax Receivable Agreement
|9 Months Ended|
Sep. 30, 2021
|Deferred Income Taxes and Tax Credits [Abstract]|
|Income Taxes and Tax Receivable Agreement||
Note 13 – Income Taxes and Tax Receivable Agreement
The provision for income taxes differs from the amount of income tax computed by applying the applicable U.S. statutory federal income tax rate of 21% to loss before income taxes due to XPO Holdings’ pass-through structure for U.S. income tax purposes, state taxes, guaranteed payments, non-deductible expenses, and the valuation allowance against the deferred tax asset. The effective tax rate for the three and nine months ended September 30, 2021 is (1.17%) and (1.82%), respectively. The Company recognized an income tax expense of $103 and $387 on its share of pre-tax book income (loss), exclusive of the redeemable noncontrolling interest of 49.0%.
As of September 30, 2021, management determined based on applicable accounting standards and the weight of all available evidence, it was not more likely than not (“MLTN”) that the Company will generate sufficient taxable income to realize its deferred tax assets including the difference in tax basis in excess of the financial reporting value for its investment in XPO Holdings. Consequently, the Company has established a full valuation allowance against its deferred tax assets as of September 30, 2021. In the event that management subsequently determines that it is MLTN that the Company will realize its deferred tax assets in the future over the recorded amount, a decrease to the valuation allowance will be made, which will reduce the provision for income taxes.
As of September 30, 2021, the total TRA liability is approximately $180.
On March 27, 2020, the United States enacted the CARES Act. The Cares Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions are amending certain provisions of the previously enacted Tax Cuts and Jobs Act related to depreciable property and net operating losses, deferral of payroll taxes, and the PPP. At September 30, 2021, the Company has not booked any income tax provision/(benefit) for the impact for the CARES Act due to its recent incorporation and the pass- through treatment of XPO Holdings. The Company has deferred payroll taxes of approximately $700 of which 50% will be due on or before December 31, 2021, and the remainder due on or before December 31, 2022.
The Company is subject to taxation and files income tax returns in the United States federal jurisdiction, many state and foreign jurisdictions. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. The Company’s tax returns remain open for examination in the U.S for years 2018 through 2021. Our foreign subsidiaries are generally subject to examination three years following the year in which the tax obligation originated. The years subject to audit may be extended if the entity substantially understates corporate income tax.