Income Taxes

The significant components of our income tax expense (benefit) attributable to current operations for the periods stated were as follows:



	For the Year Ended December 31,
	2013			2012			2011
	(Dollars in thousands)
Income before income tax expense (benefit)	$	45,339		$	46,063		$	57,525
Current:
Federal tax	$	575		$	(144	)	$	(39	)
State tax	958			1,179			1,798
Foreign tax	—			4			24
	$	1,533		$	1,039		$	1,783
Deferred:
Federal tax	$	16,790		$	18,378		$	(28,252	)
State tax	(355		)	296			45
Foreign tax	(159		)	(634		)	163
	$	16,276		$	18,040		$	(28,044	)
Total income tax expense (benefit)	$	17,809		$	19,079		$	(26,261	)

The following table summarizes the principal elements of the difference between the United States Federal statutory rate of 35% and our effective tax rate:



	For the Year Ended December 31,
	2013		2012		2011
Federal income tax at statutory rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal tax benefit	3.8	%	3.4	%	3.6	%
State law changes	—	%	0.3	%	0.3	%
Acquisition transaction costs	—	%	—	%	1.6	%
Nondeductible compensation expense	1.8	%	—	%	—	%
Change in deferred income tax rates	(2.6	)%	—	%	—	%
Interest on income tax refunds	—	%	(0.1	)%	—	%
Change in valuation allowance	1.2	%	1.4	%	(87.3	)%
Other	0.1	%	1.4	%	1.1	%
Effective tax rate	39.3	%	41.4	%	(45.7	)%

The net deferred income tax assets at December 31, 2013 and 2012 were as follows:



	December 31,
	2013			2012
	(Dollars in thousands)
Current:
Net deferred income tax asset	$	18,565		$	13,037
Valuation allowance	(15,176		)	(9,122		)
	3,389			3,915
Long-term:
Net deferred income tax asset	129,595			150,840
Valuation allowance	(104,101		)	(109,601		)
	25,494			41,239
Total deferred income tax assets	$	28,883		$	45,154

The deferred income tax assets at December 31, 2013 and 2012 were as follows:



	December 31,
	2013			2012
	(Dollars in thousands)
Net operating losses and tax credits	$	130,880		$	147,710
Property and equipment	12,380			12,988
Accruals and accrued loss contingencies	8,043			9,602
Gross deferred income tax assets	151,303			170,300
Deferred income tax liabilities:
Prepaid expenses	(398		)	(497		)
Other	(3		)	(2		)
Intangible assets	(2,742		)	(5,924		)
Gross deferred income tax liabilities	(3,143		)	(6,423		)
Net deferred income tax assets	$	148,160		$	163,877
Valuation allowance	(119,277		)	(118,723		)
Total deferred income tax assets	$	28,883		$	45,154

Current State Income Tax Provision — The current state income tax expense for 2013 decreased from the 2012 state income tax expense by $0.2 million. This is due primarily to the decline in taxable income.

Net Operating Losses — As of December 31, 2013, we had approximately $343.8 million of Federal net operating losses (“NOLs”) available to offset future taxable income. The Internal Revenue Code (“IRC”) Section 382 (“IRC Section 382”) limited NOLs as of December 31, 2013 totaled $50.4 million which may be used at a rate of $6.1 million per year. The remainder of our Federal NOLs carryforwards of $293.4 million is not subject to a limitation. The IRC Section 382 limited NOLs will fully expire on December 31, 2021, and the unlimited NOLs begin expiring in 2023 and will fully expire in 2029. We have foreign NOLs available for future years of approximately $0.7 million which do not expire and foreign tax credits of $0.5 million.

Valuation Allowance — We assess the recoverability of our deferred income tax assets, which represent the tax benefits of future tax deductions, by considering the adequacy of future taxable income from all sources. This assessment is required to determine whether based on all available evidence, it is “more likely than not” (which means a probability of greater than 50%) that all or some portion of the deferred income tax assets will be realized in future periods. The deferred income tax asset valuation allowance balances at December 31, 2013 and 2012 were $119.3 million and $118.7 million, respectively. (Included in this amount were approximately $0.9 million and $0.7 million for foreign operations at December 31, 2013 and 2012, respectively.) The valuation allowance reduces the deferred income tax assets to their estimated recoverable amounts which at December 31, 2013 and 2012 represented 19.5% and 27.6%, respectively, of the available deferred income tax assets. The decrease in the percentage of recoverable deferred income tax assets in 2013 reflects the increase in the valuation allowance relating to deferred income tax assets from Alternative Minimum Tax ("AMT") credit carryforwards and updated estimates of our expected benefits from such assets based on the forecasted results for the wireless and software operations. During 2013 we did not make any adjustment to our valuation allowance account except for the increase of $0.6 million due to the AMT tax credit carryforward.

We consider both positive and negative evidence when evaluating the recoverability of our deferred income tax assets. During the fourth quarter of each year, we prepare a multi-year forecast of taxable income for our wireless and software operations. The wireless operations have experienced a continuing decline in revenue and taxable income as subscribers switch to other communication solutions. The software operations have been impacted by the economic slowdown of the past several years resulting in customers deferring or delaying purchases. The wireless and software operations forecast of taxable income are not sufficient to result in the full realization of our deferred income tax assets.

The anticipated effective income tax rate is expected to continue to differ from the Federal statutory rate of 35% primarily due to the effect of state income taxes, the effect of changes to the deferred income tax asset valuation allowance, permanent differences between book and taxable income and certain discrete items. The earnings of non-US subsidiaries are deemed to be indefinitely reinvested in non-US operations.

As of December 31, 2013 and 2012, there were no uncertain income tax positions and as such, no liability for unrecognized tax benefits.

Income Tax Audits — Our Federal income tax returns have been examined by the IRS through December 31, 2008. The audits of the Federal returns for the years ended 2005 through 2008 resulted in no changes. The IRS also audited Amcom’s 2009 Federal tax return (pre-acquisition) with no changes. The 2010, 2011 and 2012 income tax returns of the Company have not been audited by the IRS and are within the statute of limitations (“SOL”).

We operate in all states and the District of Columbia and are subject to various state income and franchise tax audits. The states’ SOL varies from three to four years from the later of the due date of the return or the date filed. We usually file our Federal and all state and local income tax returns on or before September 15 of the following year; therefore, the SOLs for those states with a three year SOL is open for calendar years ending 2010 through 2013, and for the four year SOL states, the SOL is open for years ending from 2009 through 2013.