10.INCOME TAXES

ARLP’s indirect subsidiaries, ASI and Wildcat Insurance, are subject to federal and state income taxes. Wildcat Insurance’s income is due to insurance premiums provided by the ARLP Partnership’s other subsidiaries. ASI’s income is principally due to its subsidiary, Matrix Design. There are minor temporary differences between our taxable entities financial reporting basis and the tax basis of their assets and liabilities. Components of income tax expense (benefit) are as follows:

	Year Ended December 31,
	2015			2014		2013
				(in thousands)

Current:
Federal	$	13		$	-	$		8
State	1			-		16

	14			-		24
Deferred:
Federal	7			-		1,022
State	-			-		351

	7			-		1,373


Income tax expense	$		21	$	-	$	1,397

The ARLP Partnership has deferred tax assets due to net operating losses and research and development credits associated with ASI’s operations in the amount of $8.3 million, partially offset by liabilities of $1.6 million. State and federal valuation allowances have been established to reduce these deferred tax assets to an amount that will, more likely than not, be realized. During 2015, the federal and state valuation allowances increased to $5.2 million and $1.5 million, respectively, primarily due to the ongoing evaluation process of the losses and credits anticipated to be realized in future years.

Reconciliations from the provision for income taxes at the U.S. federal statutory tax rate to the effective tax rate for the provision for income taxes are as follows:

	Year Ended December 31,
	2015		2014			2013
			(in thousands)

Income taxes at statutory rate	$	106,454	$	172,434		$		137,547

Less: Income taxes at statutory rate on Partnership income not subject to income taxes	(107,594)		(173,322)			(139,107)

Increase/(decrease) resulting from:
State taxes, net of federal income tax	(123)		(112)			(192)
Change in valuation allowance of deferred tax assets	1,557		1,636			3,483
Other	(273)		(636)			(334)


Income tax expense	$	21	$		-	$	1,397