NOTE 9 – INCOME TAXES

The provision for income taxes from continuing operations is comprised of (in thousands):


	Years ended December 31,
	2016			2015			2014
Current:
Federal	$	18,307		$	13,939		$	7,616
State		3,472			2,989			1,369

		21,779			16,928			8,985
Deferred:
Federal		(338	)		(1,255	)		(676	)
State		(267	)		(260	)		298

		(605	)		(1,515	)		(378	)

Total tax expense	$	21,174		$	15,413		$	8,607

The reconciliation between our effective tax rate on net income from continuing operations and the federal statutory rate is as follows (dollars in thousands):


	Years ended December 31,
	2016					2015					2014
Income tax at federal statutory rate	$	20,864		35.0	%	$	14,676		35.0	%	$	7,905		35.0	%
Stock compensation		(227	)	(0.4	%)		—		0.0	%		—		0.0	%
Qualified Production Activity Deduction		(1,776	)	(3.0	%)		(1,347	)	(3.2	%)		(694	)	(3.1	%)
Other permanent items		(92	)	(0.1	%)		(69	)	(0.2	%)		(272	)	(1.2	%)
Change in valuation allowance		442		0.7	%		467		1.1	%		585		2.6	%
Change in uncertain tax positions		66		0.1	%		(559	)	(1.3	%)		—		0.0	%
State income taxes, net of federal benefit		1,897		3.2	%		2,245		5.4	%		1,083		4.8	%

Total tax expense	$	21,174		35.5	%	$	15,413		36.8	%	$	8,607		38.1	%

Components of the net deferred tax asset or liability are as follows (in thousands):


	As of December 31,
	2016			2015
Deferred Tax Assets
Long-term
Accrued reserves and allowances	$	2,314		$	648
Inventories		284			88
Intangibles		806			180
Net operating loss carryforwards		2,921			2,999
Other current and long-term		2			2

Long-term deferred tax assets		6,327			3,917
Less: Valuation allowance		(2,415	)		(1,974	)

Net deferred tax assets		3,912			1,943
Deferred Tax Liabilities
Long-term
Accrued reserves and allowances		(565	)		(136	)
Property and equipment		(1,505	)		(1,475	)
Intangibles		(4,899	)		(5,626	)
Investment in partnership		(9,530	)		(8,757	)
Other		(62	)		(59	)

Long-term deferred tax liabilities		(16,561	)		(16,053	)

Net deferred tax liabilities	$	(12,649	)	$	(14,110	)

As of December 31, 2016, we have federal and state income tax net operating loss (NOL) carryforwards of $2.9 million, the earliest of which expires in 2030.

Valuation Allowance

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets on a jurisdiction and by tax filing entity basis. A significant piece of objective negative evidence evaluated is cumulative losses incurred over the most recent three-year period. Such objective evidence limits our ability to consider other subjective positive evidence such as our projections for future growth.

Based on this evaluation, a valuation allowance has been recorded as of December 31, 2016 and 2015 for the net deferred tax assets recorded on certain of our wholly owned subsidiaries. Such deferred tax assets relate primarily to net operating losses that are not more likely than not realizable. However, the amount of the deferred tax asset considered realizable could be adjusted if our estimate of future taxable income during the carryforward period changes, or if objective negative evidence in the form of cumulative losses is no longer present. Additional weight may be given to subjective evidence such as our projections for growth in this situation.

Uncertain Tax Positions

We are subject to taxation in the United States and various state jurisdictions. As of December 31, 2016, our tax years for 2013 through 2015 are subject to examination by the tax authorities. A rollforward of the gross unrecognized tax benefits is as follows (in thousands):


Unrecognized tax benefit, January 1, 2015	$	2,817
Increase as a result of tax positions taken during the period		2,647
Decrease as a result of tax positions taken during the period		(1,415	)
Decrease as a result of expiring statutes		(463	)

Unrecognized tax benefit, December 31, 2015		3,586
Increase as a result of tax positions taken during the period		2,354
Decrease as a result of tax positions taken during the period		(1,356	)
Decrease as a result of expiring statutes		(487	)

Unrecognized tax benefit, December 31, 2016	$	4,097

$1.7 million of the unrecognized tax benefits at December 31, 2016 would affect the effective tax rate. Interest expense and penalties accrued related to uncertain tax positions as of December 31, 2016 are $0.2 million.

We expect a decrease to the amount of unrecognized tax benefits (exclusive of penalties and interest) within the next twelve months of zero to $1.6 million.

Determining uncertain tax positions and the related estimated amounts requires judgment and carry estimation risk. If future tax law changes or interpretations should come to light, or additional information should become known, our conclusions regarding unrecognized tax benefits may change.