|9 Months Ended|
Sep. 30, 2017
|Income Tax Disclosure [Abstract]|
We make estimates and judgments in determining our provision for income taxes for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
Our provision for income taxes in interim periods is based on our estimated annual effective tax rate. We record cumulative adjustments in the quarter in which a change in the estimated annual effective rate is determined. The estimated annual effective tax rate calculation does not include the effect of discrete events that may occur during the year. The effect of these events, if any, is recorded in the quarter in which the event occurs.
Our effective income tax rate was (82.4)% and 43.7% for the nine months ended September 30, 2017 and 2016, respectively. Our effective rate is lower than the statutory rate for the nine months ended September 30, 2017, primarily because of excess tax benefits from stock-based compensation of $2.7 million, $4.5 million and $7.2 million recognized as discrete items during, respectively, the first, second and third quarters of 2017, as required by ASU 2016-09. The effective rate is higher than the statutory rate for the nine months ended September 30, 2016, primarily because of state income taxes and non-deductible expenses.
As a result of our adoption of ASU 2016-09, on January 1, 2017 we recorded a deferred tax asset of $43.8 million, net of a $0.3 million valuation allowance, with a corresponding increase to retained earnings. The deferred tax asset consisted of excess stock-based compensation deductions that arose but were not recognized in prior years. See additional discussion of our adoption of ASU 2016-09 in Note 2. In the second quarter of 2017, we recorded a deferred tax asset of $0.6 million as a result of differences in the treatment of convertible debt issuance costs for financial reporting and tax purposes.
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://www.xbrl.org/2003/role/presentationRef