INCOME TAXES

The total provision (benefit) for income taxes consists of the following for the fiscal years ending (dollars in thousands):



	Fiscal Year Ended March 31,
	2016		2015		2014
Current	$	36	$	49	$	19
Deferred	—		—		(2,077		)
	$	36	$	49	$	(2,058	)

	2016		2015		2014
Federal	$	15	$	—	$	(1,830	)
State	21		49		(228		)
	$	36	$	49	$	(2,058	)

A reconciliation of the statutory federal income tax rate and effective income tax rate is as follows:



	Fiscal Year Ended March 31,
	2016		2015		2014
Statutory federal tax rate	34.0	%	34.0	%	34.0	%
State taxes, net	2.8	%	3.6	%	2.8	%
Federal tax credit	—	%	0.2	%	0.9	%
State tax credit	—	%	0.1	%	0.4	%
Change in valuation reserve	(29.1	)%	(37.0	)%	(10.2	)%
Permanent items	(7.5	)%	(0.1	)%	(2.9	)%
Change in tax contingency reserve	(0.1	)%	—	%	(0.3	)%
Other, net	(0.3	)%	(1.0	)%	0.2	%
Effective income tax rate	(0.2	)%	(0.2	)%	24.9	%

The net deferred tax assets and liabilities reported in the accompanying consolidated financial statements include the following components (dollars in thousands):



	March 31,
	2016			2015
Inventory, accruals and reserves	$	3,686		$	5,297
Other	187			159
Deferred revenue	73			91
Valuation allowance	(3,946		)	(5,547		)
Total net current deferred tax assets and liabilities	$	—		$	—
Federal and state operating loss carryforwards	19,727			13,154
Tax credit carryforwards	1,475			1,475
Non-qualified stock options	3,125			2,914
Deferred revenue	(31		)	7
Fixed assets	(1,493		)	(1,698		)
Intangible assets	(1,297		)	(1,687		)
Valuation allowance	(21,506		)	(14,165		)
Total net long-term deferred tax assets and liabilities	$	—		$	—
Total net deferred tax assets	$	—		$	—

Orion is eligible for tax benefits associated with the excess of the tax deduction available for exercises of non-qualified stock options, or NQSOs, over the amount recorded at grant. The amount of the benefit is based upon the ultimate deduction reflected in the applicable income tax return. Benefits of $0, $0 and $13,000 were recorded in fiscal 2016, fiscal 2015 and fiscal 2014, respectively, as a reduction in taxes payable and a credit to additional paid in capital based on the amount that was utilized in the current year.

As of March 31, 2016, Orion has federal net operating loss carryforwards of approximately $55,807,000, of which $3,586,000 are associated with the exercise of NQSOs that have not yet been recognized by Orion in its financial statements. Orion also has state net operating loss carryforwards of approximately $42,181,000, of which $3,941,000 are associated with the exercise of NQSOs. Orion also has federal tax credit carryforwards of approximately $1,475,000 and state tax credits of $769,000. Orion's net operating loss and tax credit carryforwards will begin to expire in varying amounts between 2020 and 2036. For the fiscal year ended March 31, 2016, Orion has recorded a valuation allowance of $25,452,000, equaling the net deferred tax asset due to the uncertainty of its realization value in the future. For the fiscal years ended March 31, 2016 and March 31, 2015, the valuation allowance against Orion's net federal and net state deferred tax assets increased $5,740,000 and $11,802,000, respectively. Orion considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event that Orion determines that the deferred tax assets are able to be realized, an adjustment to the deferred tax asset would increase income in the period such determination is made.

Generally, a change of more than 50% in the ownership of Orion's stock, by value, over a three year period constitutes an ownership change for federal income tax purposes as defined under Section 382 of the Internal Revenue Code. As a result, Orion's ability to use its net operating loss carryforwards, attributable to the period prior to such ownership change, to offset taxable income can be subject to limitations in a particular year, which could potentially result in increased future tax liability for Orion. Orion does not believe an ownership change affects the use of the full amount of the net operating loss carryforwards. There was no limitation that occurred for fiscal 2016, fiscal 2015, or fiscal 2014.

Orion records its tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where Orion believes that a tax position is supportable for income tax purposes, the item is included in their income tax returns. Where treatment of a position is uncertain, a liability is recorded based upon the expected most likely outcome taking into consideration the technical merits of the position based on specific tax regulations and facts of each matter. These liabilities may be affected by changing interpretations of laws, rulings by tax authorities, or the expiration of the statute of limitations.

As of December 31, 2011, an examination of Orion’s U.S. federal income tax returns for tax years 2009 to 2011 was complete. The resolution of this examination did not have a material effect on its business, financial condition, results of operations or liquidity.

State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective return. The state effect of any federal changes remains subject to examination by various states for a period of up to two years after formal notification to the states. Orion currently has no state income tax return positions in the process of examination, administrative appeals or litigation.

Orion is currently negotiating a settlement with the Wisconsin Department of Revenue with respect to an assessment regarding the proper classification of our products for tax purposes under Wisconsin law. The issue under review is whether the installation of our lighting systems is considered a real property construction activity under Wisconsin law. We currently expect to resolve this matter with the Wisconsin Department of Revenue in fiscal 2017 for the amount that we have accrued.

Uncertain tax positions

As of March 31, 2016, the balance of gross unrecognized tax benefits was approximately $227,000, all of which would reduce Orion’s effective tax rate if recognized.

Orion has classified the amounts recorded for uncertain tax benefits in the balance sheet as other liabilities (non-current) to the extent that payment is not anticipated within one year. Orion recognizes penalties and interest related to uncertain tax liabilities in income tax expense. Penalties and interest are included in the unrecognized tax benefits. Orion had the following unrecognized tax benefit activity (dollars in thousands):



	Fiscal Year Ended March 31,
	2016		2015		2014
Unrecognized tax benefits as of beginning of fiscal year	$	212	$	210	$	188
Additions based on tax positions related to the current period positions	15		2		22
Unrecognized tax benefits as of end of fiscal year	$	227	$	212	$	210