NOTE 9. INCOME TAXES

Deferred Tax Assets and Liabilities

We record deferred tax assets and liabilities to account for the effects of temporary differences between the tax basis of an asset or liability and its amount as reported in our consolidated balance sheets. The temporary differences result in taxable or deductible amounts in future years.

Deferred tax assets and liabilities presented on the consolidated balance sheets are as follows (in thousands):




	December 31,
	2015			2014
Current deferred tax asset (liability)	$	(1,663	)	$	(1,438	)
Non-current deferred tax liability	(13,095		)	(16,081		)
Net deferred tax liability	$	(14,758	)	$	(17,519	)

The following table details the components of our deferred tax assets and liabilities (in thousands):



	December 31,
	2015			2014
Deferred Tax Assets
Reserve for employee benefits	$	656		$	715
Provision for doubtful accounts	53			57
Deferred compensation	744			608
Asset retirement obligation	193			180
Progressive slot and players’ club liabilities	2,386			2,595
Tax benefit of current year NOL	12,901			13,834
Equity compensation	1,108			927
General business credits	1,029			837
AMT credit	330			213
Litigation reserve	1,116			1,116
Gaming taxes	1,136			765
Accrued expenses	483			200
Other	679			208
Gross deferred tax assets	22,814			22,255
Valuation allowance	(21,082		)	(17,992		)
Deferred tax assets, net of valuation allowance	1,732			4,263
Deferred Tax Liabilities
Depreciation and amortization	(13,821		)	(18,715		)
Debt issuance costs	(501		)	(453		)
Prepaid services and supplies	(2,168		)	(2,614		)
Gross deferred tax liabilities	(16,490		)	(21,782		)
Net deferred tax liability	$	(14,758	)	$	(17,519	)

We have assessed the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2015. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. On the basis of this evaluation, as of December 31, 2015, a valuation allowance of $21.1 million has been recorded to reflect only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

At December 31, 2015, we had a gross federal net operating loss carryforward of approximately $35.7 million. In addition, we have deferred tax assets of approximately $0.3 million related to Alternative Minimum Tax credits and $1.0 million related to general business credits. The net operating losses and general business credits can be carried forward and applied to offset taxable income for 20 years; they will begin to expire in 2031. We can carry forward the Alternative Minimum Tax credit and apply it to offset regular tax liabilities indefinitely; it will not expire.

On September 13, 2013, the U.S. Treasury Department released final income tax regulations on the deduction and capitalization of expenditures related to tangible property. These final regulations apply to tax years beginning on or after January 1, 2014. Several of the provisions within the regulations required a tax accounting method change to be filed with the IRS, resulting in a cumulative effect adjustment. To account for the adoption of these regulations, for the year ended December 31, 2014, long-term deferred tax liabilities increased by $1.8 million, with the offsetting increase to noncurrent deferred income tax assets. Before these regulations were issued, this $1.8 million would have been recovered over 39 years through tax depreciation deductions.

We have analyzed our filing positions in each jurisdiction where we are required to file income tax returns. We believe our income tax filing positions and deductions will be sustained on audit and we do not anticipate any adjustments that will result in a material change to our financial position. We recognize accrued interest and penalties related to uncertain tax benefits as a component of income tax expense.

We filed income tax returns in the United States federal jurisdiction and in several state jurisdictions. A federal tax examination for 2011 and 2012 was closed during the year ended December 31, 2014. The final examination determination resulted in no material changes to our financial position and deferred tax assets and liabilities.

Provision for Income Taxes

The following table presents the components of our income tax provision attributable to pre-tax income from continuing operations, as well as the income tax benefit attributable to pre-tax income from discontinued operations (in thousands):



	Year Ended December 31,
	2015		2014			2013
CURRENT
Federal	$	—	$	—		$	—
State	—		—			—
Total current tax provision	—		—			—
DEFERRED
Federal	2,583		(14,682		)	694
State	152		(864		)	(175		)
Total deferred tax benefit (provision)	2,735		(15,546		)	519
Benefit from (provision for) income taxes related to continuing operations	2,735		(15,546		)	519
Benefit from income taxes related to discontinued operations	—		—			133
Total benefit from (provision for) income tax	$	2,735	$	(15,546	)	$	652

The following table presents a reconciliation between the federal statutory rate and the effective income tax rate, expressed as a percentage of pre-tax income:




	December 31,
	2015		2014
Tax at federal statutory rate	34.0	%	34.0	%
State income tax	2.0	%	2.0	%
Lobbying costs (non-deductible expense)	(0.4	)%	(6.0	)%
Other non-deductible expense	(1.3	)%	(3.3	)%
Other, net	0.5	%	(0.5	)%
State provision adjustment	—	%	—	%
Valuation allowance	(19.5	)%	(221.3	)%
General business credit	2.0	%	3.9	%
Effective tax rate related to continuing operations	17.3	%	(191.2	)%
Effective tax rate related to discontinued operations	—	%	—	%
Total effective tax rate	17.3	%	(191.2	)%