12. Income Taxes

The University has deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are subject to periodic recoverability assessments. Realization of the deferred tax assets, net of deferred tax liabilities is principally dependent upon achievement of projected future taxable income. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that the University will realize the benefits of these deductible differences. The University has no valuation allowance at December 31, 2014 and 2013.

The components of income tax expense (benefit) are as follows:


	Year Ended December 31,
	2014		2013		2012
Current:
Federal	$	50,980	$	40,949	$	36,367
State		6,216		5,540		7,462

		57,196		46,489		43,829

Deferred:
Federal		2,734		4,209		(448	)
State		418		898		32

		3,152		5,107		(416	)

Tax expense recorded as an increase of paid-in capital		7,884		4,588		564

	$	68,232	$	56,184	$	43,977

A reconciliation of income tax computed at the U.S. statutory rate to the effective income tax rate is as follows:


	Year Ended December 31,
	2014			2013			2012
Statutory U.S. federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		4.3			5.5			5.9
State tax credits, net of federal effect		(1.5	)		(1.8	)		(1.6	)
Nondeductible expenses		0.1			0.3			0.2
Other		0.1			(0.2	)		(0.7	)

Effective income tax rate		38.0	%		38.8	%		38.8	%

Significant components of the University’s deferred income tax assets and liabilities are as follows:


	As of December 31,
	2014			2013
Deferred tax assets:
Allowance for doubtful accounts	$	2,654		$	3,870
Share-based compensation		8,487			7,987
Deferred rent		1,290			2,290
Intangibles		3,312			3,669
Other		4,440			2,016

Deferred tax assets		20,183			19,832

Deferred tax liability:
Property and equipment		(28,203	)		(24,952	)
Other		(1,805	)		(1,553	)

Deferred tax liability		(30,008	)		(26,505	)

Net deferred tax liability	$	(9,825	)	$	(6,673	)

The deferred tax amounts above have been classified in the University’s balance sheets as follows:


	As of December 31,
	2014			2013
Deferred income taxes, current	$	6,149		$	5,159
Deferred income taxes, non-current		(15,974	)		(11,832	)

Net deferred tax liability	$	(9,825	)	$	(6,673	)

The University recognizes the impact of a tax position in its financial statements if that position is more-likely-than-not to be sustained on audit, based on the technical merits of the position. The University discloses all unrecognized tax benefits, which includes the reserves recorded for uncertain tax positions on filed tax returns and the unrecognized portion of affirmative claims. The University recognizes interest and penalties related to uncertain tax positions in income tax expense.

There were no unrecognized tax benefits at December 31, 2014 or 2013. During the year ended December 31, 2012, the University recognized approximately $87 in interest and penalties. At December 31, 2014 and 2013, the University had no accrued interest or penalties. It is reasonably possible that the unrecognized tax benefits will change during the next 12 months, however management does not expect the potential amount to have a material effect on the results of operations or financial position.

The University is subject to taxation in the United States, in states with an income tax and in several local jurisdictions. During the second quarter ended June 30, 2014, the Internal Revenue Service (“IRS”) commenced an examination of the University’s 2011 income tax return. The IRS concluded its audit of the University’s 2011 income tax return with no changes to our reported tax or tax liability. As of December 31, 2014, the earliest tax year still subject to examination for federal and state purposes is 2011 and 2005, respectively.