9. Income Taxes

Provision for Income Taxes

Our provision for income taxes relating to continuing operations consists of the following (in thousands):


	December 31,
	2018		2017		2016
Current tax provision—
Federal	$	22,728	$	35,434	$	32,721
State and Puerto Rico		8,589		6,054		4,683
Total current		31,317		41,488		37,404
Deferred tax provision (benefit)—
Federal		4,347		5,391		(2,101)
State and Puerto Rico		109		(1,213)		862
Total deferred		4,456		4,178		(1,239)
Provision for income taxes	$	35,773	$	45,666	$	36,165

The provision for income taxes for the years ended December 31, 2018, 2017 and 2016 resulted in effective tax rates on continuing operations of 24.1%, 45.2% and 35.8%, respectively. The reasons for the differences between these effective tax rates and the federal statutory rates are as follows (in thousands):


	December 31,
	2018			2017			2016
Federal statutory rate of—		21	%		35	%		35	%
Income taxes at the federal statutory rate	$	31,222		$	35,328		$	35,371
Increases (decreases) resulting from—
Net state income taxes		7,470			2,838			4,262
Valuation allowances		(2,852)			91			(1,254)
Net unrecognized tax benefits		(15)			153			20
Nondeductible expenses		1,926			1,134			825
R&D tax credits		(2,726)			—			—
Net operating loss carryforwards		2,225			—			—
Stock-based compensation deductions		(1,293)			(1,320)			(885)
Domestic production activities deduction		—			(2,112)			(2,026)
Corporate tax rate reduction to 21%		—			9,478			—
Other		(184)			76			(148)
Provision for income taxes	$	35,773		$	45,666		$	36,165

As of December 31, 2017, we recorded provisional amounts for the impact of the Tax Cuts and Jobs Act. An expense of $9.5 million was recorded in the fourth quarter of 2017 for the remeasurement of our net deferred tax assets based on the rates at which they are expected to reverse in the future (generally 21%). At December 31, 2018, we completed our accounting for the impact of the Tax Cuts and Jobs Act, and no further adjustments were made.

During 2018, we filed an amended return claiming the credit for increasing research activities (“R&D tax credits”) and recorded a $2.7 million tax benefit that was fully offset by an increase in unrecognized tax benefits. We also dissolved our Puerto Rican subsidiary and thus wrote-off the remaining $2.2 million of net operating loss (“NOL”) carryforwards and related valuation allowance. Neither the R&D tax credits claim nor the dissolution of our Puerto Rican subsidiary had an impact on our 2018 effective tax rate.

Deferred Tax Assets (Liabilities)

Significant components of the deferred tax assets and deferred tax liabilities as reflected on the balance sheets are as follows (in thousands):


	Year Ended
	December 31,
	2018		2017
Deferred tax assets—
Accounts receivable and allowance for doubtful accounts	$	1,445	$	715
Stock-based compensation		2,538		2,297
Accrued liabilities and expenses		19,449		19,555
Net operating loss carryforwards		3,242		6,007
Intangible assets		5,071		2,272
Other		550		544
Subtotal		32,295		31,390
Valuation allowances		(648)		(3,500)
Total deferred tax assets		31,647		27,890
Deferred tax liabilities—
Property and equipment		(10,488)		(4,668)
Long-term contracts		(688)		(625)
Goodwill		(3,864)		(1,572)
Other		(360)		(322)
Total deferred tax liabilities		(15,400)		(7,187)
Net deferred tax assets	$	16,247	$	20,703

The deferred tax assets and liabilities reflected above are included in the consolidated balance sheets as follows (in thousands):


	December 31,
	2018		2017
Deferred tax assets	$	17,634	$	22,966
Deferred tax liabilities	$	1,387	$	2,263

As of December 31, 2018, we had $3.2 million of future tax benefits related to $55.5 million of available state NOL carryforwards, which expire in varying amounts between the years 2021 and 2038. Valuation allowances of $0.6 million have been recorded against certain of the state NOL carryforwards. The $2.6 million deferred tax asset for state NOL carryforwards, net of valuation allowances, reflects our conclusion that it is more-likely-than-not these assets will be realized based upon expected future earnings in certain subsidiaries.

We update our assessment of the realizability of deferred tax assets relating to state NOL carryforwards annually. A return to profitability in our subsidiaries with valuation allowances would result in a release of a portion of the valuation allowance relating to realizable deferred tax assets. A sustained period of profitability could cause a change in our judgment of any remaining deferred tax assets. If that were to occur, then it is likely that we would reverse some or all of the remaining valuation allowances.

Liabilities for Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding accrued interest and penalties, is as follows (in thousands):


	Year Ended
	December 31,
	2018		2017		2016
Balance at beginning of year	$	8,929	$	240	$	240
Additions based on tax positions related to current year		—		8,689		—
Additions based on tax positions related to prior years		2,726		—		—
Reductions for tax positions related to prior years		(8,689)		—		—
Reductions for settlements with tax authorities		—		—		—
Balance at end of year	$	2,966	$	8,929	$	240

As of December 31, 2018, 2017 and 2016, we had $3.0 million, $8.9 million and $0.2 million, respectively, of unrecognized tax benefits, which if recognized in future periods, would impact our effective tax rate. We also had accrued $0.6 million, $0.7 million and $0.4 million for potential interest and penalties related to the unrecognized tax benefits as of December 31, 2018, 2017 and 2016, respectively. We recognize potential interest and penalties related to unrecognized tax benefits in our provision for income taxes.

We believe it is reasonably possible that a decrease of up to $3.0 million in unrecognized tax benefits could occur within the next twelve months. Any decrease in our unrecognized tax benefits, due to the future recognition of those tax benefits, would affect our effective tax rate.

We are subject to taxation in the United States and various state jurisdictions. In the fourth quarter of 2017, we received a ‘no change letter’ from the Internal Revenue Service upon completion of its examination of the 2015 tax year. We remain open to examination by various state tax authorities for the 2010 tax year forward. As of December 31, 2018, we did not have any state audits underway that would have a material impact on our financial position or results of operations.