Income Taxes

3 Months Ended

Mar. 31, 2013

Income Taxes

Income Taxes

13.  Income Taxes

At March 31, 2013, we had a net deferred tax liability of $266.7 million, compared to $298.9 million at December 31, 2012. The decrease in the net deferred tax liability was primarily due to an improvement in the fair value of our finance receivables, which are marked to market value for tax basis. We had a partial valuation allowance on our state deferred tax assets, net of a deferred federal tax benefit of $21.4 million at March 31, 2013, compared to $19.7 million at December 31, 2012. The increase in the valuation allowance reflected net losses recorded by our legal entities that file separate state income tax returns. We also had a valuation allowance against our United Kingdom operations of $19.8 million at March 31, 2013 and $19.6 million at December 31, 2012.

The effective tax rate for the three months ended March 31, 2013 was 17.3%. The effective tax rate differed from the statutory rate primarily due to the impact of recording a partial valuation allowance related to our foreign and state operations and an out-of-period adjustment. The out-of-period adjustment accounted for a 14.8% decrease in the effective tax rate, or a net decrease in benefit from income taxes of $1.2 million for the three months ended March 31, 2013 ($19.5 million increase in current income tax expense and $18.3 million increase in deferred benefit from income taxes). This adjustment, although temporary in nature, had an impact on the state tax expense since the adjustment impacted various states that have net operating losses and valuation allowances. The out-of-period adjustment related to the correction of the fair value estimate of our non-securitized net finance receivables at December 31, 2012. The fair value of our total net finance receivables, less allowance for finance receivable losses at December 31, 2012 has been revised in Note 18.