7. INCOME TAXES

In determining the provision for income taxes, the Company uses an estimated annual effective tax rate that is based on the annual income, statutory tax rates and permanent differences between book and tax. This includes recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns to the extent pervasive evidence exists that they will be realized in future periods. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which are expected to be in effect in the years in which the temporary differences are expected to reverse. In accordance with the Company’s income tax policy, significant or unusual items are separately recognized when they occur.

The components of the gross liabilities related to unrecognized tax benefits and the related deferred tax assets are as follows:



	June 30,
(in thousands)	2017		2016
Gross unrecognized tax benefits	$	320	$	610
Accrued interest and penalties		130		250
Gross liabilities related to unrecognized tax benefits	$	450	$	860

Deferred tax assets	$	130	$	250

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:




(in thousands)		2017		2016		2015
Balance at July 1	$	610	$	1,580	$	1,290
Additions based on tax positions related to the current year		130		45		390
Additions for tax positions of prior years		-		-		-
Reductions for tax positions of prior years		(420)		(1,015)		(100)
Balance at June 30	$	320	$	610	$	1,580

The Company records interest and penalties related to income taxes as income tax expense in the consolidated statements of income. The Company does not expect that there will be any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

The income tax provision is as follows for the years ended June 30:



(in thousands)	2017		2016		2015
Federal - current	$	11,015	$	9,343	$	11,725
State and other - current		1,179		1,616		930
Deferred		1,606		2,731		605
Total	$	13,800	$	13,690	$	13,260

A reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows for the years ended June 30:



	2017		2016		2015
Federal statutory tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal effect	2.7		3.8		2.6
Other	(1.0)		(2.7)		(0.3)
Effective tax rate	36.7	%	36.1	%	37.3	%

The primary components of deferred tax assets and (liabilities) are as follows:


	June 30,
(in thousands)	2017		2016
Accounts receivable	$	460	$	490
Inventory		(50)		500
Self-insurance		560		660
Payroll and related		1,690		3,120
Accrued liabilities		1,240		1,100
Property, plant and equipment		(2,850)		(3,080)
Investment tax credit		1,930		1,990
Valuation allowance		(1,390)		(1,380)
Other		150		260
Total	$	1,740	$	3,660

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. Generally, tax years 2013–2016 remain open to examination by the Internal Revenue Service or other taxing jurisdictions to which we are subject.