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AMERCO : UHAL : Adjusting future earnings for the potential impact of the new tax law.

By Ian Gilson, PhD, CFA


Now that the new tax laws are in place we have adjusted our earnings forecast to reflect the new tax rate of 21% on domestic earnings subject to federal taxes.
AMERCO's (NASDAQ:UHAL) tax rate has been close to 36% in each of the last five years (counting back from 2017 the annual percentage rates have been 36.4, 36.4, 36.5, 36.3, 35.7). This includes current taxes, deferred taxes, state taxes and non-U.S. taxes (Canada).
The composition of the federal taxes booked against U.S. income has varied from year to year, with 2017 being an abnormal relationship (deferred taxes were nearly four times greater than current federal taxes). The more normal rates were those taken in 2016.
We do not know what the treatment will be on deferred taxes, of which there was $912 million on the balance sheet as of Sept. 30, 2017. These were accrued under the old tax laws at about 32%. Deferred taxes may become payable. Not being a tax accountant I do not know when nor at what rate these would move from the balance sheet to the income statement.
Looking at the taxes on the income statement over the past few years (using round numbers) in a different way we can impute a tax rate looking forward. We will use a different approach than is usual.
In past years taxes paid were about 16 percentage points of the 36% rate; deferred taxes were also 16 percentage points, state taxes 3 points and Canadian taxes 1 point, for a total of 36 percentage points.
State taxes are likely, in our opinion, to increase as the state try to capture some of the decline in federal rates (California is already discussing increasing corporate rates to offset  the changes in personal tax rates). Canadian income was close to 3% of pretax income in recent years and we do not see any significant impact on tax rates in our calculations.
The question is what will be the "deferred" tax rate? Will it remain at 35%  on U.S. income or drop to 21%? If the deferred amount is close to 21% rate paid on current taxes then we calculate an overall tax rate of 25%. However, if the deferred rate remains at 35% then the new tax rate should be closer to 30%.
Until we can get some clarification from the company (the next earnings release should be close to Feb. 06, 2018) we will adopt a more conservative rate or 30%. Based on our current expectations and excluding any impact from the sale of property we calculate a positive impact of $0.06 per share in 2018; $1.95 in 2019 and $2 a share in 2020.

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