INCOME TAXES

Neff Corporation is required to file federal and applicable state corporate income tax returns and recognizes income taxes on its pre-tax income, which to date has consisted primarily of its share of Neff Holdings pre-tax income. Neff Holdings is a limited liability company that is treated as a partnership for federal and state income tax purposes. Neff Holdings is not subject to income taxes for federal and state purposes. Rather, taxable income or loss is included in the respective federal and state income tax returns of Neff Holdings members.

The components of provision for income taxes included in the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2015 and 2014 were as follows (in thousands):



	For the Three Months Ended June 30, 2015			For the Three Months Ended June 30, 2014		For the Six Months Ended June 30, 2015			For the Six Months Ended June 30, 2014
Current expense
Federal	$	—		$	—	$	—		$	—
State and local	68			119		133			238
Total current expense	$	68		$	119	$	133		238
Deferred expense
Federal	$	1,371		$	—	$	1,256		$	—
State and local	(339		)	—		(44		)	—
Total deferred expense	1,032			—		1,212			—
Total	$	1,100		$	119	$	1,345		$	238

NOTE 9—INCOME TAXES (Continued)

The following table summarizes the differences between the statutory federal income tax rate and the Company’s effective income tax rate (percent data):



	For the Three Months Ended June 30, 2015		For the Three Months Ended June 30, 2014		For the Six Months Ended June 30, 2015		For the Six Months Ended June 30, 2014
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%	35.0	%
Increase (decrease) in tax rate resulting from:
State and local income taxes net of federal benefit	(1.2	)	—		0.2		—
Uncertain tax positions	—		(0.5	)	0.1		(1.4	)
Permanent book/tax differences	(10.0	)	—		(10.7	)	—
Change in tax rate	—		—		0.1		—
Non-controlling interest	(16.7	)	(35.0	)	(17.5	)	(35.0	)
Other	0.1		—		(0.2	)	—
Effective tax rate	7.2	%	(0.5	)%	7.0	%	(1.4	)%

The following table summarizes the tax effects comprising the Company’s net deferred tax assets and liabilities (in thousands):



	June 30, 2015			December 31, 2014
Deferred Tax Assets
Net operating loss carryforwards	$	8,644		$	2,535
Bad debt expense	329			336
Accrued liabilities	334			902
Equity-based compensation	203			139
Gain on interest rate swap	(34		)	—
Insurance/parts reserves	553			543
Straight-line rent adjustment	99			100
Uncertain tax positions	108			104
Subtotal	10,236			4,659
Less: valuation allowance	—			—
Total deferred tax assets	$	10,236		$	4,659
Deferred Tax Liabilities
Intangible assets	$	(3,151	)	$	(2,841	)
Deferred debt costs	(295		)	(230		)
Depreciation	(13,407		)	(6,993		)
Total deferred tax liability	$	(16,853	)	$	(10,064	)

Deferred Tax Liability, net	$	(6,617	)	$	(5,405	)

Management periodically assesses the recoverability of its deferred tax assets based upon expected future earnings, future deductibility of the asset and changes in applicable tax laws and other factors. If management determines that it is not probable that the deferred tax asset will be fully recoverable in the future, a valuation allowance may be established for the difference between the asset balance and the amount expected to be recoverable in the future. The allowance will result in a charge to the Company’s unaudited condensed consolidated statements of operations. Based on management’s assessment of the available positive and negative evidence, including future reversal of taxable temporary differences, we believe it is more likely than not that the deferred tax assets will be realized.

On October 1, 2010, Neff Holdings purchased substantially all of the assets of Neff Holdings Corp. and certain of its affiliates (collectively, the "Predecessor") in connection with the Predecessor's bankruptcy cases under chapter 11 of title 11 of the United States Code (the "Acquisition").

NOTE 9—INCOME TAXES (Continued)

In connection with the Acquisition uncertain tax liabilities were assumed by Neff Holdings and are recorded in the Company's accrued expenses as of June 30, 2015 and December 31, 2014. As a taxable entity, the Company recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. At June 30, 2015 and December 31, 2014, the amount of uncertain tax positions recorded in accrued expenses was approximately $0.4 million.

The Company's practice is to recognize interest and penalties on uncertain tax positions in income tax expense. The Company recognized accrued interest and penalties of $0.3 million as of June 30, 2015 and December 31, 2014. The Company expects to reverse $0.4 million in uncertain tax positions and $0.3 million in interest and penalties during the third quarter of 2015.