Income Taxes

Total income taxes for the years ended December 31, 2016, 2015 and 2014 were allocated as follows:



	2016		2015			2014
	(in thousands)
Income tax expense on continuing operations	$	2,840	$	27,726		$	22,151
Shareholders’ equity, for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes	—		(679		)	(395		)
Other comprehensive income for changes in cash flow hedge	4,162		(476		)	(993		)
	$	7,002	$	26,571		$	20,763

The Company and its subsidiaries file income tax returns in several jurisdictions. The provision for the federal and state income taxes attributable to income from continuing operations consists of the following components:



	Years Ended December 31,
	2016			2015			2014
	(in thousands)
Current expense
Federal taxes	$	44,779		$	23,579		$	16,592
State taxes	10,936			5,275			2,562
Total current provision	55,715			28,854			19,154
Deferred expense (benefit)
Federal taxes	(47,056		)	(744		)	1,636
State taxes	(5,819		)	(384		)	1,361
Total deferred provision	(52,875		)	(1,128		)	2,997
Income tax expense on continuing operations	$	2,840		$	27,726		$	22,151
Effective tax rate	146.0		%	40.4		%	39.5		%

A reconciliation of income taxes determined by applying the federal and state tax rates to income from continuing operations is as follows for the years ended December 31, 2016, 2015 and 2014:



	Years Ended December 31,
	2016			2015		2014
	(in thousands)
Computed “expected” tax expense (35%)	$	681		$	24,007	$	19,612
State income taxes, net of federal tax effect	6			3,179		2,550
Changes in state DTL for mergers	3,320			$	—	—
Excess share based compensation	(1,709		)	—		—
Nondeductible merger expenses	801			$	—	—
Other, net	(259		)	540		(11		)
Income tax expense on continuing operations	$	2,840		$	27,726	$	22,151

The effective tax rate increased substantially in 2016 primarily due to the minimal base of pre-tax earnings in 2016 accompanied by changes in blended state rates applied to basis differences caused by the nTelos acquisition and the Company's legal entity restructuring that combined the nTelos legal entity into the Company's PCS subsidiary. The rate was further affected by the adoption of ASU 2016-09 regarding share based compensation and non-deductible transaction costs incurred during 2016 related to the nTelos acquisition.

Net deferred tax assets and liabilities consist of the following temporary differences at December 31, 2016 and 2015:



	2016			2015
	(in thousands)
Deferred tax assets:
Deferred revenues	$	8,849		$	2,367
Net operating loss carry-forwards	29,472			717
Accruals and reserves	10,517			5,658
Pension benefits	6,994			1,023
Asset retirement obligations	8,495			2,922
Intangible assets	—			325
Total gross deferred tax assets	64,327			13,012
Less valuation allowance	(709		)	(709		)
Net deferred tax assets	63,618			12,303

Deferred tax liabilities:
Plant-in-service	139,753			85,503
Intangibles	70,799			—
Interest rate swaps	4,433			271
Other, net	470			490
Total gross deferred tax liabilities	215,455			86,264
Net deferred tax liabilities	$	151,837		$	73,961

In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generating future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes it more likely than not that the net deferred tax assets will be realized with the exception of certain state net operating losses in jurisdictions where the Company no longer operates. The Company has a deferred tax asset of $29.5 million related to federal and various state net operating losses, of which $0.7 million is associated with a valuation allowance. As of December 31, 2016, the Company had approximately $74 million of federal net operating losses expiring through 2035. The Company also has state net operating losses expiring through 2035.

As of December 31, 2016 and 2015, the Company had no unrecognized tax benefits. It is the Company’s policy to record interest and penalties related to unrecognized tax benefits in income before taxes.

The Company files U.S. federal income tax returns and various state and local income tax returns. The Company is not currently subject to state or federal income tax audits as of December 31, 2016. The Company's returns are generally open to examination from 2013 forward and the net operating losses acquired in the acquisition of nTelos are open to examination from 2002 forward.