|3 Months Ended|
Mar. 31, 2019
|Income Tax Disclosure [Abstract]|
Quintana Energy Services LP was originally organized as a limited partnership and treated as a flow-through entity for federal and most state income tax purposes. As such, taxable income and any related tax credits were passed through to its members and included in their respective tax returns. As a result of the IPO and related Reorganization Transactions, Quintana Energy Services Inc. was formed as a corporation to hold all of the operational assets of Quintana Energy Services LP. Accordingly, in 2018, a provision for federal and state corporate income taxes was only made for the operations of Quintana Energy Services Inc. from February 8, 2018 through March 31, 2018 in the unaudited condensed consolidated financial statements.
As the Company does not operate internationally, income from continuing operations is sourced exclusively from the United States.
ASC 740, "Income Taxes", requires the Company to reduce its deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. As a result of the Company’s evaluation of both the positive and negative evidence, the Company determined it does not believe it is more likely than not that its deferred tax assets will be utilized in the foreseeable future and has recorded a valuation allowance. The valuation allowance as of March 31, 2019 fully offsets the impact of the initial benefit recorded related to the formation of Quintana Energy Services Inc. This initial deferred impact was recorded as an adjustment to equity due to a transaction between entities under common control.
ASC 740-270-25, Income Taxes - Interim Reporting, requires the Company to compute its interim tax provision by applying an estimated annual effective tax rate to ordinary income (or loss) and then computing the tax expense (or benefit) related to all other items individually. The Company has incurred a year to date ordinary loss and anticipates to be in an ordinary loss position at the end of the fiscal year. As such, the interim period benefit shall be computed in accordance with ASC 740-270-30-5, in which the estimated annual effective tax rate shall be applied to the year to date ordinary income at the end of each interim period and any tax benefit as a result, shall be limited if determined the benefit will not be realized.
The Company’s forecasted annualized effective tax rate for 2019 of (2.31)% differs from the statutory rate, primarily due to nondeductible permanent items, state taxes and a valuation allowance. Total tax expense was $0.2 million resulting in the Company's effective tax rate on continuing operations for the three months ended March 31, 2019 of (2.13)%. The difference between the annualized effective tax rate for 2019 of (2.31)% and the effective tax rate on continuing operations for the three months ended March 31, 2019 of (2.13)% is primarily made up of the discrete tax effect related to stock-based compensation expense.
The Company’s forecasted annualized effective tax rate for 2018 of 33.87% differed from the statutory rate, primarily due to nondeductible permanent items, state taxes and a valuation allowance. The Company's effective tax rate on continuing operations for the three months ended March 31, 2018 was (0.29)%. The difference between the annualized effective tax rate for 2018 of 33.87% and the effective tax rate on continuing operations for the three months ended March 31, 2018 of (0.29)% is primarily made up of the recording of a full valuation allowance against all deferred tax assets as well as the discrete tax effect related to stock-based compensation expense.
The decrease in the effective tax rate for the period ended March 31, 2019 as compared to the same period in 2018 was primarily due to the discrete tax expense related to stock-based compensation as a result of RSU vestings and PSU forfeitures.
Tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured as the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. The Company’s policy is to record interest and penalties relating to uncertain tax positions in income tax expense. At March 31, 2019, the Company did not have any accrued liability for uncertain tax positions and does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months.
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