12. INCOME TAXES

We account for our tax positions in accordance with Codification Topic Income Taxes. Under the guidance, we evaluate uncertain tax positions based on the two-step approach. The first step is to evaluate each uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in an audit, including resolution of related appeals or litigation processes, if any. For tax positions that are not likely of being sustained upon audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement.

As of March 31, 2015, we had $72 thousand of total gross unrecognized tax benefits recorded for uncertain income tax position in accordance with Income Taxes in the Codification. During the year ended March 31, 2016, we had no additions or reductions for uncertain income tax positions therefore our balance remains unchanged at $72 thousand.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

	Year Ended March 31,
	2016		2015

Beginning balance	$	72	$	149
Reductions to uncertain tax positions		-		(77	)
Ending balance	$	72	$	72

At March 31, 2016, if the unrecognized tax benefits of $72 thousand were to be recognized, including the effect of interest, penalties and federal tax benefit, the impact would have been $104 thousand. At March 31, 2015, if the unrecognized tax benefits of $72 thousand were to be recognized, including the effect of interest, penalties and federal tax benefit, the impact would have been $101 thousand.

In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the fiscal years ended March 31, 2016 and 2015, we recognized $4 thousand of interest in both years related to uncertain tax positions, and did not recognize any additional penalties. We had $48 thousand and $43 thousand accrued for the payment of interest at March 31, 2016 and 2015, respectively.

We file income tax returns, including returns for our subsidiaries, with federal, state, local, and foreign jurisdictions. Tax years 2012, 2013 and 2014 are subjected to examination by federal and state taxing authorities. Various state and local income tax returns are also under examination by taxing authorities. We do not believe that the outcome of any examination will have a material impact on our financial statements.

A reconciliation of income taxes computed at the statutory federal income tax rate of 35% to the provision for income taxes included in the consolidated statements of operations is as follows (in thousands, except percentages):

	Year Ended March 31,
	2016			2015			2014

Statutory federal income tax rate		35	%		35	%		35	%
Income tax expense computed at the U.S. statutory federal rate	$	26,513		$	27,410		$	21,040
State income tax expense—net of federal benefit		3,544			4,193			3,080
Non-deductible executive compensation		331			222			248
Other		616			648			457
Provision for income taxes	$	31,004		$	32,473		$	24,825
Effective income tax rate		40.9	%		41.5	%		41.3	%

The components of the provision for income taxes are as follows (in thousands):

	Year Ended March 31,
	2016			2015			2014
Current:
Federal	$	21,361		$	27,665		$	23,313
State		6,114			6,667			5,033
Foreign		13			3			15
Total current expense		27,488			34,335			28,361

Deferred:
Federal		3,727			(1,591	)		(3,274	)
State		(211	)		(271	)		(262	)
Total deferred expense (benefit)		3,516			(1,862	)		(3,536	)

Provision for income taxes	$	31,004		$	32,473		$	24,825

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows (in thousands):

	March 31,
	2016			2015
Deferred Tax Assets:
Accrued vacation	$	2,116		$	1,955
Deferred compensation		-			89
Deferred revenue		1,046			369
Foreign net operating loss carryforward		461			-
Reserve for credit losses		1,929			2,066
Restricted stock		1,778			1,431
Other credits and carryforwards		1,275			1,235
Other accruals and reserves		1,556			687
Gross deferred tax assets		10,161			7,832
Less: valuation allowance		(1,270	)		(1,223	)
Net deferred tax assets		8,891			6,609

Deferred Tax Liabilities:
Basis difference in fixed assets		(1,170	)		(1,238	)
Basis difference in operating leases		(7,749	)		(2,356	)
Basis difference in tax deductible goodwill		(2,973	)		(2,411	)
Total deferred tax liabilities		(11,892	)		(6,005	)

Net deferred tax (liabilities) assets	$	(3,001	)	$	604

The effective income tax rate for the year ended March 31, 2016 was 40.9%, compared to 41.5% of the previous fiscal year.

As of March 31, 2016, we have state capital loss carryforwards of approximately $1.3 million, which have been fully reserved. The valuation allowance resulted from management's determination, based on available evidence, that it was more likely than not that the state capital loss deferred tax asset balance may not be realized. If not realized, the state capital loss carryforwards will generally expire in 5 years.

As of March 31, 2016, we have a foreign net operating loss of approximately $0.5 million related to operations in the United Kingdom. No valuation allowance was recognized as a result of management's determination, based on available evidence, that it was more likely than not that the foreign net operating loss deferred tax asset balance will be realized. The foreign net operating loss is not set to expire.