Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

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Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

11. INCOME TAXES

The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended, and will generally not be subject to corporate income taxes to the extent it distributes its taxable income to its shareholders and complies with certain other requirements.

The Company has elected to treat three of its subsidiaries as taxable REIT subsidiaries. In general, the Company’s taxable REIT subsidiaries may perform additional services for tenants and generally may engage in certain real estate or non-real estate related business. A taxable REIT subsidiary is subject to corporate federal and state income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities.

The Company recorded federal and state income tax expense of $0.4 million and $0.5 million for the three months ended March 31, 2019 and 2018, respectively, which are included in general and administrative expenses in the consolidated statements of operations. At March 31, 2019 and 2018, there were no material unrecognized tax benefits. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. As of March 31, 2019 and 2018, the Company had no interest or penalties related to uncertain tax positions. Income taxes payable at March 31, 2019 and December 31, 2018 are classified within accounts payable and accrued liabilities in the consolidated balance sheets. Prepaid income taxes at March 31, 2019 and December 31, 2018 are classified within prepaid expenses, while the net deferred tax assets of our taxable REIT subsidiaries at March 31, 2019 and December 31, 2018 are classified within other assets in the consolidated balance sheets. As of March 31, 2019, the Company’s taxable REIT subsidiaries have prepaid taxes of $0.1 million, deferred tax assets totaling $2.4 million, and a deferred tax liability of $1.7 million. As of December 31, 2018, the Company’s taxable REIT subsidiaries have prepaid taxes of $0.1 million, deferred tax assets of $2.1 million and a deferred tax liability of $1.6 million. The tax years 2015-2018 remain open to examination by the major taxing jurisdictions to which the Company is subject.

The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 20, 2017. The TCJA significantly changed the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their shareholders. Under the TCJA, the corporate income tax rate is reduced from a maximum rate of 35% to a flat 21% rate. The reduced corporate income tax rate, which is effective for taxable years beginning after December 31, 2017, applies to income earned by our taxable REIT subsidiaries.