Income Taxes

During the three months ended March 31, 2014, we completed an analysis of our taxable income apportionment by state. As a result of this analysis, we reduced our marginal tax rate, used in our calculation of deferred tax assets and liabilities, by 0.52%. This resulted in a net decrease in deferred tax liabilities and income tax expense of $2.0 million.

At the beginning of 2013, we had valuation allowances related to our deferred tax assets. We reevaluate the need for a valuation allowance against our U.S. deferred tax assets each quarter, considering results to date, projections of taxable income, tax planning strategies and reversing taxable temporary differences. During the six months ended March 31, 2013, we decreased our U.S. deferred tax valuation allowance by $11.1 million, including $6.3 million in other comprehensive income and $4.3 million in discontinued operations. Notwithstanding the valuation allowance, our net operating loss carryforwards remain available to offset future taxable earnings.

The components of income tax expense on continuing operations are provided below.



	Three months ended						Six months ended
	March 31,						March 31,
	2014			2013			2014			2013
	(in millions)
Expense (benefit) from income (loss) before income taxes	$	5.1		$	3.9		$	5.6		$	1.5
Deferred tax asset valuation allowance adjustments	—			(1.3		)	—			(0.5		)
State tax rate change	(2.0		)	—			(2.0		)	—
Other discrete items	—			(0.1		)	(0.2		)	(0.1		)
	$	3.1		$	2.5		$	3.4		$	0.9

At March 31, 2014 and September 30, 2013, the gross liabilities for unrecognized income tax benefits were $3.6 million and $3.7 million, respectively.

We recognize interest related to uncertain income tax positions as interest expense and would recognize any penalties that may be incurred as selling, general and administrative expenses. At March 31, 2014 and September 30, 2013, we had $0.9 million and $0.9 million, respectively, of accrued interest liabilities related to uncertain tax positions.

Our state income tax returns are generally closed for years prior to 2006, except to the extent of our state net operating loss carryforwards. Our Canadian income tax returns are generally closed for years prior to 2006. We are currently under audit by several states at various levels of completion. We do not have any material unpaid assessments.