INCOME TAXES

The provision for income taxes consists of the following (in thousands):



	Year Ended December 31,
	2017		2016			2015
Current income taxes:
Federal	$	22,533	$	20,433		$	23,876
State	2,550		2,478			3,358
Total	25,083		22,911			27,234
Deferred income taxes:
Federal	1,576		(857		)	(1,754		)
State	64		(29		)	(164		)
Total	1,640		(886		)	(1,918		)
Total income tax provision	$	26,723	$	22,025		$	25,316

Deferred income taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows at December 31 (in thousands):



	2017			2016
Deferred tax assets:
Stock-based compensation	$	997		$	1,899
Federal benefit of state uncertain tax positions	919			1,392
Accrued vacation	660			1,035
Deferred rent	119			275
State net operating loss carryforwards	266			222
Allowance for doubtful accounts	135			160
Other	316			299
	3,412			5,282
Less: Valuation allowance	(257		)	(189		)
Total	3,155			5,093
Deferred tax liabilities:
Property and equipment & capitalized internal use software development costs	(2,488		)	(2,786		)
Net deferred tax asset	$	667		$	2,307

The Company has identified certain estimated state net operating loss (“NOL”) carryforwards that it might be unable to use. Based on a review of applicable state tax statutes, the Company concluded that there is substantial doubt it would be able to realize the full amount of certain estimated NOL carryforwards in states where the Company cannot file a consolidated income tax return or where future taxable income will not be sufficient to utilize the state NOL before it expires. As a result, the Company recorded a deferred tax asset valuation allowance totaling approximately $0.3 million and $0.2 million, respectively, at December 31, 2017 and 2016.

The following table reconciles the statutory federal income tax rate and the effective income tax rate indicated by the consolidated statements of income:



	Year Ended December 31,
	2017		2016		2015
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
Domestic production activities deductions	(2.6	)%	(8.7	)%	—	%
Federal and state tax credits	(2.0	)%	(2.0	)%	(1.2	)%
Excess tax benefits from restricted stock vestings	(0.7	)%	—	%	—	%
State income taxes	1.8	%	1.4	%	2.1	%
Uncertain tax positions	1.6	%	3.3	%	0.9	%
Nondeductible expenses	0.7	%	0.6	%	1.0	%
Other	0.3	%	(1.3	)%	(0.2	)%
Effective federal and state income tax rate	34.1	%	28.3	%	37.6	%

The Company’s effective tax rate in 2017 was lower than the statutory federal income tax rate due mainly to favorable benefits related to the domestic production activities deduction, the federal research and development credit, and excess tax benefits from restricted stock vestings, partially offset by the one-time charge as a result of the new tax law described below.

The Company's lower effective tax rate in 2016 was due mainly to favorable benefits related to the domestic production activities deduction, the federal research and development credit, an adjustment to certain deferred tax liabilities related to a previous acquisition of a business and the filing of the Company’s 2014 and 2013 amended federal income tax returns during the fourth quarter of 2016.

During the third quarter of 2016, the Company completed its study of qualifying activities for the domestic production activities deduction and began recognizing tax benefits for the deduction upon the filing of its fiscal 2015 federal income tax return. The Company recognized tax benefits, included in its income tax provision for 2016, of approximately $1.5 million for the 2016 tax year and approximately $1.4 million for the 2015 tax year, related to the domestic production activities deduction.

During the fourth quarter of 2016, the Company amended its federal income tax returns for the 2014 and 2013 tax years and recognized tax benefits, included in its income tax provision for 2016, of approximately $1.2 million for the 2014 tax year and $1.0 million for the 2013 tax year, related to the domestic production activities deduction.

Excess tax benefits in the amount of $0.5 million were recognized as a component of income tax expense during 2017, resulting from restricted stock vestings. Prior to the adoption of ASU 2016-09, excess tax benefits of $0.6 million and $0.4 million were recognized as additional paid-in capital during 2016 and 2015, respectively.

The following table provides a reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits (included in other long-term liabilities in the consolidated balance sheets) for the years ended December 31, 2017, 2016 and 2015 (in thousands):



	2017			2016			2015
Balance at January 1	$	6,599		$	3,721		$	2,798
Additions for tax positions of prior years	576			1,754			338
Additions for tax positions of current years	1,646			1,589			1,094
Expiration of the statute of limitations	(788		)	(439		)	(366		)
Reductions for tax positions of prior years	(13		)	(26		)	(143		)
Balance at December 31	$	8,020		$	6,599		$	3,721

The increase in the amount of the consolidated liability for unrecognized income tax benefits in 2017 was mainly due to the domestic production activities deduction that the Company began recognizing in 2016.

At December 31, 2017, 2016 and 2015, there were approximately $7.1 million, $5.2 million and $2.6 million, respectively, of unrecognized tax benefits that if recognized would affect the Company’s annual effective tax rate. It is reasonably possible that events will occur during the next 12 months that would cause the total amount of unrecognized tax benefits to increase or decrease. However, the Company does not expect such increases or decreases to be material to its financial condition or results of operations.

The Company, along with its wholly owned subsidiaries, files a consolidated U.S. federal income tax return and separate income tax returns in many states throughout the U.S. The Company remains subject to U.S. federal examination for the tax years ended on or after December 31, 2013. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return.

The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of income tax expense in the consolidated statements of income. Accrued interest and penalty amounts were not significant at December 31, 2017, 2016 and 2015.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act, among other changes, reduces the statutory federal corporate income tax rate from 35% to 21%. In the fourth quarter of 2017, Company recognized a one-time charge totaling approximately $0.3 million to reduce net deferred tax assets as of December 31, 2017, based on the anticipated reduction in the Company's prospective effect tax rate resulting from the Tax Act. The Company will receive the benefit of the reduced statutory federal corporate income tax rate starting January 1, 2018, which will be partially offset by changes in certain deductions (most notably the elimination of the domestic production activity deductions). Due to the complexities of the new tax legislation, the SEC has issued Staff Accounting Bulletin ("SAB") 118 which allows for the recognition of provisional amounts during a measurement period similar to the measurement period used when accounting for business combinations. The Company has recorded a provisional re-measurement of its deferred tax assets and liabilities, resulting in a minimal impact on its 2017 income tax provision. The Company will continue to assess the impact of the new tax legislation, as well as any related future regulations and rules, and will record any additional impacts as identified during the measurement period, if necessary.