Deferred income taxes are the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We have not recognized deferred US income taxes on the undistributed earnings of foreign subsidiaries and affiliates that we intend to permanently reinvest in foreign operations. The cumulative amount of such earnings was $847.7 million at December 31, 2015. The ultimate tax cost of repatriating these earnings depends on tax laws in effect and other circumstances at the time of distribution.

The following table shows the significant components of our deferred tax liabilities and assets as of December 31 (in millions):



	2015			2014
Deferred Tax Liabilities
Book/tax basis difference due to depreciation	$	1,058.1		$	963.8
Investments in affiliated companies	72.9			99.7
Lease accounting	7.3			10.5
Other	—			0.1
Total deferred tax liabilities	1,138.3			1,074.1
Deferred Tax Assets
Federal net operating loss	13.2			41.8
Alternative minimum tax credit	14.8			9.2
Foreign tax credit	5.8			3.6
Valuation allowance on foreign tax credit	(5.8		)	(3.6		)
State net operating loss	27.7			28.7
Valuation allowance on state net operating loss	(12.6		)	(11.3		)
Foreign net operating loss	3.6			5.8
Valuation allowance on foreign net operating loss	(0.3		)	(0.2		)
Accruals not currently deductible for tax purposes	22.2			18.7
Allowance for losses	3.2			1.7
Pension and post-retirement benefits	35.8			32.6
Other	12.4			9.8
Total deferred tax assets	120.0			136.8
Net deferred tax liabilities	$	1,018.3		$	937.3

At December 31, 2015, we have a US federal tax net operating loss carryforward of $37.7 million that will start expiring in 2033. We also have an alternative minimum tax credit of $14.8 million that has an unlimited carryforward period.

At December 31, 2015, we have foreign tax credits of $5.8 million that are scheduled to expire beginning in 2016. We have recorded a $5.8 million valuation allowance related to these credits, as we believe it is more likely than not that we will be unable to utilize them. We also have state net operating losses of $27.7 million, net of federal benefits that are scheduled to expire at various times beginning in 2016. We have recorded a $12.6 million valuation allowance related to state net operating losses, as we believe it is more likely than not that we will be unable to use all of these losses. Additionally, we have foreign net operating losses, net of valuation allowances, of $3.3 million which have unlimited carryforward periods. Our use of future tax credits and net operating losses depends on a number of variables, including the amount of taxable income, foreign source income attributes, and state apportionment factors.

The following table shows a reconciliation of the beginning and ending amount of our gross liability for unrecognized tax benefits (in millions)



	2015		2014
Beginning balance	$	5.6	$	5.7
Reductions due to settlement of tax audit issues	—		(0.4		)
Additions to tax positions for prior years	0.1		0.3
Ending balance	$	5.7	$	5.6

At December 31, 2015, our gross liability for unrecognized tax benefits was $5.7 million, of which $3.8 million, if recognized, would favorably impact income tax expense. During the year ended December 31, 2015, we added an additional $0.1 million gross state tax liability. During the year ended December 31, 2014, we settled a tax audit recognizing a tax benefit of $0.4 million. Additionally, in 2014, we added a gross state tax liability of $0.3 million (net tax expense impact of $0.2 million). We recognize interest and penalties related to unrecognized tax benefits as income tax expense. We have not accrued any amounts for penalties. To the extent interest is not assessed or is otherwise reduced with respect to uncertain tax positions, we will record any required adjustment as a reduction of income tax expense.

We file one consolidated federal income tax return with our domestic subsidiaries in the US jurisdiction, as well as tax returns in various state and foreign jurisdictions. As of December 31, 2015, all audits or statute of limitations with respect to our federal tax returns for years prior to 2012 have been closed or expired. However, GATX and our subsidiaries are undergoing audits in various state jurisdictions.

The following table shows the components of income before income taxes, excluding affiliates, for the years ending December 31 (in millions):



	2015		2014		2013
Domestic	$	174.7	$	137.9	$	66.0
Foreign	95.6		93.3		93.0
	$	270.3	$	231.2	$	159.0

The following table shows income taxes, excluding domestic and foreign joint ventures, for the years ending December 31 (in millions):



	2015			2014		2013
Current
Domestic:
Federal	$	5.6		$	0.7	$	1.4
State and local	(0.2		)	0.6		—
	5.4			1.3		1.4
Foreign	15.3			13.0		10.5
	20.7			14.3		11.9
Deferred
Domestic:
Federal	44.7			45.0		36.6
State and local	33.7			5.6		5.3
	78.4			50.6		41.9
Foreign	11.8			10.8		11.7
	90.2			61.4		53.6
Income taxes	$	110.9		$	75.7	$	65.5

The following table shows the differences between our effective income tax rate and the federal statutory income tax rate for the years ending December 31 (in millions):



	2015			2014			2013
Income taxes at federal statutory rate	$	94.6		$	80.9		$	55.6
Adjust for effect of:
GATX income taxes on sale of AAE	—			—			23.2
Foreign tax credits	—			—			(3.9		)
Foreign earnings taxed at lower rates	(6.2		)	(8.5		)	(10.3		)
Tax effect of foreign dividends	0.9			—			—
Corporate owned life insurance	(0.9		)	(0.6		)	(0.5		)
State income taxes	7.6			4.1			1.5
State deferred tax rate change impact	14.1			—			—
Other	0.8			(0.2		)	(0.1		)
Income taxes	$	110.9		$	75.7		$	65.5
Effective income tax rate	41.0		%	32.7		%	41.2		%

In 2015, our effective tax rate was 41.0% compared to 32.7% in 2014 and 41.2% in 2013. The current year effective tax rate reflects incremental deferred state income taxes of $14.1 million associated with a change in our consolidated effective state tax rate. Specifically, the sale of our marine assets in our Portfolio Management segment will have a negative impact on our allocation factors that will increase our overall effective state income tax rates in future years. Additionally, the rate in 2015 reflects a higher contribution from domestic source income, which is taxed at a higher rate, as well as the impact of an increase in the statutory tax rate in Alberta, Canada. In 2013, we recognized US and state income taxes of $23.2 million on the sale of our investment in AAE. Additionally, we realized foreign tax credit carry forwards of $3.9 million.

The adjustment for foreign earnings in each year reflects the impact of lower tax rates on income earned at our foreign subsidiaries. State income taxes are recognized on domestic pretax income or loss. The amount of our domestic income subject to state taxes relative to our total worldwide income impacts the effect state income tax has on our overall income tax rate.

Separately, our affiliates incurred a tax benefit of $0.5 million in 2015, and income taxes of $18.3 million in 2014, and $16.5 million in 2013. The 2015 and 2013 amounts were favorably impacted by tax benefits of $7.7 million and $7.6 million respectively, as a result of income tax rate reductions enacted in the United Kingdom.