8. Income Taxes

The following table presents the components of income tax expense for the years ended April 30, 2018, 2017 and 2016:


	Year Ended April 30,
	2018		2017		2016
	(in thousands)
Current federal	$	30,827	$	37,164	$	28,043
Current state		6,409		5,875		5,162
Total current		37,236		43,039		33,205
Deferred federal		(14,796)		(19,011)		(19,993)
Deferred state		(1,557)		(1,374)		(628)
Total deferred		(16,353)		(20,385)		(20,621)
Total provision for income taxes	$	20,883	$	22,654	$	12,584

The following table summarizes the significant differences between the U.S. federal statutory tax rate and the Company’s effective tax rate for financial statement for the years ended April 30, 2018, 2017 and 2016:


	Year Ended April 30,
	2018		2017		2016
	(in thousands)
Federal income taxes at statutory rate	$	25,492	$	25,039	$	8,802
State income taxes, net of federal income tax benefit		1,900		2,236		2,336
Net change in valuation allowance		151		214		(60)
Nondeductible meals & entertainment		822		761		627
338(h)(10) election		—		(6,936)		—
Redeemable noncontrolling interests		—		1,053		291
Nondeductible transaction costs		2		109		253
Net Deferred Benefit due to Tax Cuts and Jobs Act		(6,763)		—		—
Other		(721)		178		335
Total provision for income taxes	$	20,883	$	22,654	$	12,584

The tax effects of temporary differences, which give rise to deferred income taxes as of April 30, 2018 and 2017 are as follows:


	April 30,
	2018		2017
Deferred income tax assets:	(in thousands)
Allowances on accounts and notes receivable	$	3,540	$	5,792
Accrued payroll and related costs		1,138		1,651
Insurance reserves		1,734		1,139
Inventory costs		2,013		2,430
Deferred compensation		6,662		9,293
Equity compensation		2,361		3,424
Derivative instrument		561		1,488
Acquisition related costs		1,955		1,732
Net operating loss carry-forwards		1,965		2,949
Deferred rent		488		996
Noncompete agreements		681		819
Other deferred tax assets, net		946		2,576
Total deferred income tax assets		24,044		34,289
Less: Valuation allowance		(448)		(297)
Total deferred income tax assets, net of valuation allowance		23,596		33,992
Deferred income tax liabilities:
Amortization of intangible assets		(28,641)		(53,345)
Rebates		(253)		(1,007)
Depreciation		(3,596)		(3,808)
Deferred financing costs		(1,848)		(2,652)
Total deferred income tax liabilities		(34,338)		(60,812)
Deferred income tax liabilities, net	$	(10,742)	$	(26,820)

Tax Cuts and Job Act. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law. The Tax Act includes a number of provisions, including the lowering of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Because the Company’s fiscal 2018 ends April 30, 2018, the Company’s tax provision for the current fiscal year utilized a blended statutory federal rate of 30.4%, calculated by applying a prorated percentage of the number of days prior to and subsequent to the January 1, 2018 effective date of the Tax Act. In future fiscal years, the Company expects its statutory federal rate to be 21%. During the year ended April 30, 2018, the Company revised its estimated annual effective tax rate to reflect the change in the federal statutory rate.

In connection with the Tax Act, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance to companies that have not completed their accounting for the income tax effects of the Tax Act. Under SAB 118, provisional amounts can be recorded to the extent a reasonable estimate can be made. Additional tax effects and adjustments to previously recorded provisional amounts can be recorded upon obtaining, preparing, or analyzing additional information (including computations) within one year from the enactment date of the Tax Act.

As of April 30, 2018, the Company was still assessing the overall impact of the Tax Act on its financial statements and had not completed its accounting for the tax effects of the Tax Act. The Company has reported provisional amounts reflecting reasonable estimates for the re-measurement of net deferred tax liabilities as of April 30, 2018 due to the reduction in the corporate rate. The Company recorded a provisional income tax benefit of $6.7 million for this re-measurement for the year ended April 30, 2018, which is included in provision for income taxes in the Consolidated Statements of Operations and Comprehensive Income. This represents a $1.1 million decrease from the provisional amount recorded during the nine months ended January 31, 2018.

The estimated impact of the Tax Act was based on a preliminary review of the new law and is subject to revision due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act or any updates or changes to estimates the Company has utilized to calculate the impacts. Additionally, the Company continues to analyze additional information and guidance related to certain aspects of the Tax Act, such as limitations on the deductibility of executive compensation, conformity or changes by state taxing authorities in response to The Act, and the deductibility of other expenses impacted by the Tax Act. The Company will complete its accounting for the Tax Act in the period in which the Company has obtained, prepared and analyzed all information needed (including computations) for its analysis, but no later than one year from the enactment date of the Tax Act. All items related to the Tax Act remain provisional as of April 30, 2018.

Effective tax rate. Income taxes for financial reporting purposes differ from the amount computed by applying the statutory federal rate primarily due to the effect of state income taxes, net of federal benefit, permanent differences, the change in the valuation allowance related to certain state net operating losses, and re-measurement of net deferred tax liabilities. In fiscal 2017, the Company made an election under Section 338 (h)(10) of the Internal Revenue Code which effectively changed the tax treatment of the Company’s acquisition of Gypsum Supply Company from a stock transaction to an asset transaction for tax purposes. As a result of this election, the Company decreased its deferred tax liabilities and tax expense by $6.9 million.

NOLs. During recent tax years, the Company generated certain state net operating loss carry‑forwards which are available for use against taxable income in each respective state. The Company had gross state net operating losses available for carry‑forward of $20.4 million and $21.1 million in fiscal 2018 and 2017, respectively, which expire through the fiscal year ending in 2038.

Valuation allowance. Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carry‑forwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse. As of April 30, 2018, except as noted in the following paragraph, the Company believes that it is more likely than not that all of its deferred tax assets relating to separate company state return filings will be realized. The tax credits, carryforwards and net operating losses expire from 2019 to 2038.

Management makes an assessment to determine if its deferred tax assets are more likely than not to be realized. Valuation allowances are established in the event that management believes that it is more likely than not the related tax benefits will not be realized. The valuation allowance as of April 30, 2018 and 2017 was $0.4 million and $0.3 million, respectively, and primarily relates to state net operating loss carry forwards. During fiscal 2018, the valuation allowance increased by $0.1 million due to additional NOL carryforwards.

Uncertain tax positions. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. The Company’s policy for recording penalties and interest associated with uncertain tax positions is to record such items as a component of selling, general and administrative expense. The Company had no reserve for uncertain tax positions as of April 30, 2018 and 2017.

As of April 30, 2018, the tax years ended April 30, 2018, 2017, 2016 and 2015 remain subject to examination by the U.S. Internal Revenue Service. In states in which the Company conducts business, the statute of limitation periods for examination generally vary from three to four years. Net operating losses dating back to 2007 are still being carried forward and remain subject to examination by the taxing authorities. The Company regularly assesses the potential outcomes of future examinations to ensure the Company’s provision for income taxes is sufficient. The Company recognizes liabilities based on estimates of whether additional taxes will be due and believes that no liability for uncertain tax position is necessary as of April 30, 2018 and 2017.