Income Taxes

The following table presents the components of our consolidated income tax expense for the years ended December 31, 2013, 2012 and 2011:



	Current			Deferred			Total
Year ended December 31, 2013
U.S. Federal	$	(936	)	$	19		$	(917	)
State and local	238			(258		)	(20		)
	$	(698	)	$	(239	)	$	(937	)
Year ended December 31, 2012
U.S. Federal	$	(3,214	)	$	(2,174	)	$	(5,388	)
State and local	220			528			748
	$	(2,994	)	$	(1,646	)	$	(4,640	)
Year ended December 31, 2011
U.S. Federal	$	(12,386	)	$	6,736		$	(5,650	)
State and local	847			(1,544		)	(697		)
	$	(11,539	)	$	5,192		$	(6,347	)

The Company’s income tax provision reconciles to the provision at the statutory U.S. federal income tax rate for each year ended December 31, as follows:



	2013			2012			2011
Statutory amount (computed at 35%)	$	(212	)	$	(5,776	)	$	(6,812	)
State income tax, net of federal benefit	(20		)	564			(415		)
Permanent differences	(13		)	(743		)	(359		)
Permanent differences, incentive stock options	237			1,189			935
True up of deferred balances for non-qualified stock options	(571		)	—			—
True up of deferred balances for state tax benefits	(401		)	—			—
Other (net)	43			126			304
Consolidated income tax provision	$	(937	)	$	(4,640	)	$	(6,347	)
Consolidated effective tax rate	154.6		%	27.9		%	32.6		%

The Company’s effective tax rate is based on expected income, statutory tax rates and tax planning opportunities available to it. For interim financial reporting, the Company estimates its annual tax rate based on projected taxable income (or loss) for the full year and records a quarterly tax provision in accordance with the anticipated annual rate.

In the current year, the rate differed from the Company’s statutory rate of 35% primarily due to the losses incurred in the current year, offset by state income taxes, and the non-deductibility of certain permanent tax items, such as incentive stock compensation expense. In addition, the Company revised certain estimates related to deferred tax attributes associated with stock options and state tax benefits.

The Company’s deferred tax assets and liabilities are as follows:



	December 31, 2013						December 31, 2012
	Current			Long- term			Current			Long- term
Assets related to:
Accrued liabilities	$	1,913		$	—		$	1,786		$	—
Intangible assets	121			2,219			22			2,005
Net operating loss carryforward	—			10,604			—			7,367
Non-qualified stock options	—			1,268			—			1,113
Other	23			1,170			28			1,499
Total assets	2,057			15,261			1,836			11,984
Liabilities related to:
Depreciation and amortization	—			(30,082		)	—			(27,845		)
Goodwill and gain on purchase of a business	—			(3,157		)	—			(2,319		)
Deferred revenue on maintenance contracts	(1,327		)	—			(1,738		)	—
Other	(4		)	—			(61		)	—
Total liabilities	(1,331		)	(33,239		)	(1,799		)	(30,164		)
Net deferred assets (liabilities)	$	726		$	(17,978	)	$	37		$	(18,180	)

As reported in the balance sheets:



	December 31, 2013			December 31, 2012

Net current deferred tax assets	726			37
Net non-current deferred tax liabilities	(17,978		)	(18,180		)
Total net deferred tax liabilities:	$	(17,252	)	$	(18,143	)

In assessing the realizability of deferred tax assets at December 31, 2013, the Company considered whether it was more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets depends upon the generation of future taxable income, which includes the reversal of deferred tax liabilities related to depreciation, during the periods in which these temporary differences become deductible. Although the Company has had a taxable loss over the past three years, as of December 31, 2013, the Company believes that all of its available deferred tax assets will be utilized prior to expiration and therefore has not recorded a valuation allowance.

The Company has a net operating loss carryforward ("NOL") in 2013 of $2.6 million for state income tax reporting purposes due to the losses sustained in various states in 2011, 2012 and 2013. The Company believes it will be able to utilize these NOL's against future income, due to expiration dates well into the future, and therefore no valuation allowance has been established. For federal tax reporting purposes, the Company carried all of its 2011 NOL back to 2009 and 2010 and received approximately $13.1 million in cash against these tax years. Part of the loss generated in 2012 was carried back to 2010, and the Company received $2.7 million in 2013. Approximately $8.0 million remains as a Federal tax carryforward, which the Company believes it will be able to utilize before expiration.

The Company and its subsidiaries file consolidated federal income tax returns in the United States and also file in various states. With few exceptions, the Company remains subject to federal and state income tax examinations for the years of 2008, 2009, 2010 and 2011. The Company’s policy is to recognize interest and penalties related to any unrecognized tax liabilities as additional tax expense. In 2012, the Company recorded $99,000 as additional tax expense related to penalties and interest incurred as a result of filings in the U.S. Virgin Islands. No interest or penalties have been accrued at December 31, 2013 and 2012, as the Company has not recorded any uncertain tax positions. The Company believes it has appropriate and adequate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

Although the Company believes its recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore the Company’s assessments can involve both a series of complex judgments about future events and rely heavily on estimates and assumptions. Although the Company believes that the estimates and assumptions supporting its assessments are reasonable, the final determination of tax audit settlements and any related litigation could be materially different from that which is reflected in historical income tax provisions and recorded assets and liabilities. If the Company were to settle an audit or a matter under litigation, it could have a material effect on the income tax provision, net income, or cash flows in the period or periods for which that determination is made. Any accruals for tax contingencies are provided for in accordance with US GAAP.

In July 2012, consent was received from the IRS permitting the Company to change its tax accounting method for certain service revenue effective for the taxable year ended December 31, 2011, which resulted in the deferral of approximately $10.9 million of taxable income. At the time the consent was given, the Company was under audit by the IRS for its 2009 and 2010 tax years, and the Company expects that its 2011 and 2012 tax returns will also be reviewed due to the losses generated in 2011 and 2012. The Company does not expect any material changes to its returns will result from these audits and reviews.

The Company does not believe that its tax positions will significantly change due to any settlement and/or expiration of statutes of limitations prior to December 31, 2014.

In September 2013, the IRS issued its final regulations governing expenditures made on tangible property, and provides guidance on amounts paid to improve tangible property and acquire or produce tangible property, as well as guidance regarding the disposition of property and the expensing of supplies and materials (the “Repair Regulations"). Adoption and implementation is required for tax years beginning on or after January 1, 2014. Taxpayers may elect to adopt the Repair Regulations and apply the regulations retroactively to tax years beginning on or after January 1, 2012. The Company does not plan to adopt the Repair Regulations prior to the effective date of January 1, 2014, and does not anticipate adoption will have a material impact on the Company’s consolidated results of operations, cash flows or financial position.