16.Income Taxes

Income tax expense (benefit) is composed of the following (in thousands):

	Year Ended December 31,
	2016			2015			2014
Current:
Federal	$	(30,301	)	$	52,578		$	1,358
State		5,623			15,275			4,035
Total current (benefit) expense		(24,678	)		67,853			5,393
Deferred:
Federal		31,122			(46,364	)		(9,636	)
State		989			(11,752	)		(2,827	)
Total deferred expense (benefit)		32,111			(58,116	)		(12,463	)
Income tax expense (benefit)	$	7,433		$	9,737		$	(7,070	)

The Company operates in only one federal jurisdiction, the United States. The following table presents a reconciliation of the income tax benefit computed at the statutory federal rate and the Company’s income tax expense (benefit) (in thousands):

	Year Ended December 31,
	2016			2015			2014
Income tax benefit—computed as 35% of pretax loss	$	(82,286	)	$	(85,235	)	$	(60,546	)
Effect of non-controlling interests and redeemable non-controlling interests		91,183			93,221			47,962
Goodwill impairment		12,810			—			—
Amortization of prepaid tax asset		11,750			6,661			2,199
Effect of nondeductible expenses		6,942			1,232			6,617
State and local income tax expenses (net of federal benefit)		4,298			2,289			616
Effect of domestic production activities deduction		(473	)		(4,699	)		—
Effect of tax credits		(36,328	)		(4,106	)		(3,939	)
Other		(463	)		374			21
Income tax expense (benefit)	$	7,433		$	9,737		$	(7,070	)

Deferred income taxes reflect the impact of temporary differences between assets and liabilities for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards and other tax credits measured by applying currently enacted tax laws. The significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):

	December 31,
	2016			2015
Deferred tax assets:
Accruals and reserves	$	8,523		$	4,582
Stock-based compensation		7,791			9,068
Tax credits		1,744			—
Transaction costs		—			4,216
Other		351			395
Gross deferred tax assets		18,409			18,261
Valuation allowance		(204	)		(212	)
Net deferred tax assets		18,205			18,049
Deferred tax liabilities:
Investment in solar funds		(368,536	)		(220,803	)
Depreciation and amortization		(38,116	)		(13,004	)
Interest rate swaps		(5,732	)		—
Accruals and reserves		(1,039	)		(275	)
Gross deferred tax liabilities		(413,423	)		(234,082	)
Net deferred tax liabilities	$	(395,218	)	$	(216,033	)

The Company sells solar energy systems under long-term customer contracts to substantially all of the investment funds for income tax purposes. As the investment funds are consolidated by the Company, the gain on the sale of the solar energy systems is not recognized in the consolidated financial statements. However, this gain is recognized for tax reporting purposes. Since these transactions are intercompany sales for GAAP purposes, any tax expense incurred related to these intercompany sales is deferred and amortized over the estimated useful life of the underlying solar energy systems, which has been estimated to be 30 years. Accordingly, the Company has recorded a prepaid tax asset, net of $419.5 million and $277.5 million as of December 31, 2016 and 2015.

The future reversal of deferred tax liabilities is expected to produce a sufficient source of future taxable income of the necessary character and in the necessary periods and jurisdictions to support the realization of the deferred tax assets. As such, no valuation allowance is required except for as noted below.

The Company had net operating loss carryforwards of approximately $1.1 million and $1.3 million related to state (the “NOLs”), available to offset future taxable income as of December 31, 2016 and 2015. The NOLs expire in varying amounts from 2029 through 2034 for state tax purposes if unused. As of December 31, 2016 and 2015, the Company recognized a valuation allowance of $0.2 million for the existing state NOLs and other existing state tax attributes due to state-imposed limitations on their utilization.

The Company reported federal business tax credits, primarily composed of federal investment tax credits, of $36.3 million and $4.1 million for the years ended December 31, 2016 and 2015. The Company accounts for its federal business tax credits as a reduction of income tax expense in the year in which the credits arise. As of December 31, 2016, the Company had $33.2 million of federal income tax refunds receivable which were recorded in prepaid expenses and other current assets. The Company did not have any federal income tax refunds receivable as of December 31, 2015.

Uncertain Tax Positions

As of December 31, 2016 and 2015, the Company had no unrecognized tax benefits. There were no interest and penalties accrued for any uncertain tax positions as of December 31, 2016 and 2015. The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized benefits will increase or decrease within 12 months of the year ended December 31, 2016. The Company is subject to taxation and files income tax returns in the United States and various state and local jurisdictions. Substantially all of the Company’s federal, state and local income tax returns since inception are still subject to audit.