Note 14. Income Taxes

The following is a summary of the Company’s provision for income taxes for the years ended December 31, 2016, 2015 and 2014:

	December 31,
	2016			2015			2014
Current
Federal	$	—		$	—		$	(10	)
State		(64	)		155			29
International		387			243			704
Total		323			398			723
Deferred:
Federal		(10,943	)		(6,256	)		(1,570	)
State		(1,115	)		(455	)		(214	)
International		(98	)		251			(285	)
Valuation allowance		12,350			7,287			1,754
Total		194			827			(315	)
Income taxes	$	517		$	1,225		$	408

United States and foreign income (loss) before income taxes for the years ended December 31, 2016, 2015 and 2014 is as follows:

	Years ended December 31,
	2016			2015			2014
United States	$	(28,855	)	$	(17,877	)	$	(5,990	)
Foreign		6,146			6,103			1,873
Total	$	(22,709	)	$	(11,774	)	$	(4,117	)

The components of net deferred tax assets (liabilities) are as follows:

	December 31,
	2016			2015
Deferred tax assets:
Acquisition related costs	$	603		$	605
Deferred revenues		2,521			2,558
Allowance for doubtful accounts		1,186			1,339
Inventory		1,420			865
Deferred compensation		5,346			4,807
Bonus accruals		942			680
Vacation accrual		246			219
Deferred rent		1,051			1,102
Warranty accrual		570			576
Accrued expenses		476			433
Satellite network and other property		7,314			2,329
Foreign tax credit		3,011			4,398
Alternative minimum tax credit		325			325
Tax loss carryforwards and credits		11,128			5,089
Other		7			4
Total deferred tax assets		36,146			25,329
Deferred tax liabilities:
Intangible Assets		(19,309	)		(20,993	)
Goodwill		(2,852	)		(2,196	)
Total deferred tax liabilities		(22,161	)		(23,189	)
Net deferred tax assets before valuation allowance		13,985			2,140
Less valuation allowance		(32,550	)		(20,200	)
Net deferred tax asset (liabilities)		(18,565	)		(18,060	)
Deferred tax assets, non-current		80			80
Deferred tax liabilities, non-current		(18,645	)		(18,140	)
Net deferred tax assets (liabilities)		(18,565	)		(18,060	)

The Company elected to retrospectively apply recent accounting guidance requiring all deferred tax balances be classified as noncurrent. Accordingly, all current deferred tax assets and current tax liabilities have been classified as noncurrent as of December 31, 2016. The components of deferred tax assets (liabilities) and the balance sheet as of December 31, 2015 have been reclassified to reflect the retrospective application of ASU 2015-17 “Balance Sheet Classification of Deferred Taxes.”

Income taxes differs from the amount computed by applying the statutory U.S. Federal income tax rate because of the effect of the following items:

	Years Ended December 31,
	2016			2015			2014
Income tax expense at U.S. statutory rate of 34%	$	(7,720	)	$	(4,003	)	$	(1,400	)
State income taxes, net of federal benefit		(1,186	)		(353	)		(195	)
Effect of foreign subsidiaries		(291	)		(687	)		163
Tax credits		(633	)		(669	)		—
Permanent items in connection with the purchase of Euroscan		—			—			219
Permanent items for the fair value adjustment of the Euroscan contingent consideration		—			—			(390	)
Other permanent items		(1,183	)		(451	)
Change in uncertain tax positions		124
True-up from prior years		(831	)
Other		(113	)		101			257
Change in valuation allowance		12,350			7,287			1,754
Income tax	$	517		$	1,225		$	408

As part of the Company’s accounting for the acquisitions, a portion of the purchase price was allocated to goodwill. The acquired goodwill is deductible for tax purposes and amortized over fifteen years for income tax purposes. Under GAAP, the acquired goodwill is not amortized in the Company’s financial statements, as such a deferred income tax expense and a deferred tax liability arise as a result of the tax deductibility for this amount for tax purposes but not for financial statement purposes. The resulting deferred tax liability, which is expected to continue to increase over time will remain on the Company’s balance sheet indefinitely unless there is an impairment of the asset.

As of December 31, 2016 and 2015, the Company maintained a valuation allowance against all of its net deferred tax assets, excluding goodwill, attributable to operations in the United States and all other foreign jurisdictions, except for Japan, as the realization was not considered more likely than not.

The net change in the total valuation allowance for the years ended December 31, 2016, 2015 and 2014 was $12,350, $7,287 and $1,754, respectively.

The Company recognizes tax benefits associated with the exercise of SARs and stock options and vesting of RSUs directly to stockholders’ equity only when the tax benefit reduces income tax payable on the basis that a cash tax savings has occurred. Accordingly, deferred tax assets are not recognized for net operating loss carryforwards resulting from tax benefits. As of December 31, 2016 and 2015, the Company has not recognized in its deferred tax assets an aggregate of $6,409 and $5,943 of windfall tax benefits associated with the exercise of SARs and stock options and the vesting of RSUs, respectively.

As of December 31, 2016 and 2015, the Company had potentially utilizable federal net operating loss tax carryforwards of $34,380 and $18,427, respectively. As of December 31, 2016 and 2015, the Company had potentially utilizable state net operating loss tax carryforwards of $40,263 and $11,732, respectively. The net operating loss carryforwards expire at various times through 2036. At December 31, 2016 and December 31, 2015, the Company had potentially utilizable foreign net operating loss carryforwards of $6,947 and $5,932, respectively. The foreign net operating loss carryforwards expire on various dates through 2036.

The utilization of the Company’s net operating losses may be subject to a substantial limitation due to the “change of ownership provisions” under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carryforwards before their utilization.

As of December 31, 2016, the Company has not provided deferred income taxes on the undistributed earnings of its foreign subsidiaries. The amount of such earnings was $13,045. These earnings have been permanently reinvested and the Company does not plan to initiate action that would precipitate the payment of income taxes thereon. It is not practicable to estimate the amount of additional tax that might be payable on these undistributed earnings.

The following table is a reconciliation of the beginning and ending amount of unrecognized tax benefits:

	2016		2015		2014
Balance at January 1,	$	775	$	775	$	775
Additions for tax positions related to prior years		—		—		—
Additions for tax positions		81		—		—
Reductions for tax positions of prior years		—		—		—
Settlements		—		—		—
Balance at December 31,	$	856	$	775	$	775

The company accrued interest and penalties related to uncertain tax positions of $43 for the year ended December 31, 2016. No interest and penalties related to unrecognized tax benefits were accrued during the years ended December 31, 2015 and 2014. Interest and penalties are not reflected in the table above and are included in income tax expense.

As of December 31, 2016, $775 of the unrecognized tax benefits have been recorded as a reduction to the Company’s federal and state net operating loss tax carryforwards in deferred tax assets. Due to the existence of the Company’s valuation allowance, these unrecognized tax benefits, if recognized, would not impact the Company’s effective income tax rate. The remaining balance of $81, if recognized, would affect the effective tax rate. The Company is subject to U.S. federal and state examinations by tax authorities from 2013. The Company does not expect any significant changes to its unrecognized tax positions during the next twelve months.