10. Income Taxes

Income before the provision for income taxes as shown in the accompanying Consolidated Statements of Income and Comprehensive Income is as follows (in thousands):

	Year Ended December 31,
	2013		2012		2011
Domestic	$	23,729	$	29,964	$	19,358
Foreign		7,367		5,498		7,063
Total	$	31,096	$	35,462	$	26,421

Components of the provision for income taxes consist of the following (in thousands):

	Year Ended December 31,
	2013		2012		2011
Current
Federal	$	348	$	-	$	-
Foreign		2,068		2,053		2,137
State and local		26		-		-
Total current expense		2,442		2,053		2,137
Deferred expense
Federal		366		-		-
Foreign		9		85		35
State and local		27		-		-
Total deferred expense		402		85		35
Provision for income tax expense	$	2,844	$	2,138	$	2,172

Prior to October 7, 2013, the Company had not been subject to U.S. federal income taxes as RMCO is organized as a limited liability company; however, RMCO was, and continues to be, subject to certain other foreign, state and local taxes. As a result of the Reorganization Transactions and IPO, the portion of RMCO’s income attributable to RE/MAX Holdings is now subject to U.S. federal, state, local and foreign income taxes and is taxed at the prevailing corporate tax rates.

A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:

	Year Ended December 31,
	2013			2012			2011
U.S. statutory tax rate		34.0	%		34.0	%		34.0	%
Increase due to state and local taxes, net of federal benefit		2.6	%		2.5	%		2.3	%
Effect of permanent differences		1.2	%		0.0	%		0.0	%
Income attributable to non-controlling interests		(28.7	)%		(30.5	)%		(28.1	)%
Effective tax rate		9.1	%		6.0	%		8.2	%

The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate as a series of limited liability companies which are not themselves subject to federal income tax. Accordingly, the portion of the Company’s subsidiaries earnings attributable to the non-controlling interest are subject to tax when reported as a component of the non-controlling interests’ taxable income.

Income taxes payable were $448,000 and $400,000 at December 31, 2013 and 2012, respectively.

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the accompanying Consolidated Balance Sheets.

These temporary differences result in taxable or deductible amounts in future years. Details of the Company’s deferred tax assets and liabilities are summarized as follows (in thousands):

	As of December 31,
	2013			2012
Current deferred tax assets
Compensation and benefits	$	557		$	-
Allowance for doubtful accounts		456			-
Deferred revenue		239			-
Other		151			-
Total current deferred tax assets*		1,403			-
Long-term deferred tax assets
Goodwill and other intangibles		66,494			12
Rent liabilities		1,301			-
Other		516			84
Total long-term deferred tax assets		68,311			96
Long-term deferred tax liabilities
Property and equipment and other long-lived assets		(377	)		(405	)
Investments in equity method investees		(338	)		-
Total long-term deferred tax liabilities		(715	)		(405	)
Net long-term deferred tax assets		67,596			(309	)
Total deferred tax assets and liabilities	$	68,999		$	(309	)

* Current deferred tax assets are included in “Other current assets” in the accompanying Consolidated Balance Sheets.

The increase in deferred tax assets was primarily due to an increase in the tax basis of certain intangible assets resulting from RE/MAX Holdings’ investment in RMCO. Net deferred tax assets are also recorded related to differences between the financial reporting basis and the tax basis of RE/MAX Holdings’ proportionate share of the net assets of RMCO. Based on the Company’s historical taxable income and its expected future earnings, management evaluates the uncertainty associated with booking tax benefits and determined that the deferred tax assets are more likely than not to be realized, including evaluation of deferred tax liabilities and the expectation of future taxable income.

The Company does not believe it has any significant uncertain tax positions. Accordingly, the Company did not record any adjustments or recognize interest expense for uncertain tax positions for the years ended December 31, 2013, 2012 and 2011. In the future, if uncertain tax positions arise, interest and penalties will be accrued and included in the “Provision for income taxes.”

The Company and its subsidiaries file, or will file, income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. RE/MAX Holdings will file its initial income tax return for the period from October 7, 2013 through December 31, 2013 by September 15, 2014. RMCO is not subject to federal income taxes as it is a flow-through entity. With respect to state and local jurisdictions and countries outside of the United States, the Company and its subsidiaries are typically subject to examination for four to five years after the income tax returns have been filed.