Note D — Income Taxes

The components of income tax expense (benefit) are as follows:

	Year Ended December 31,
In thousands	2014		2013			2012
Current
Federal	$	5,836	$	8,689		$	14,676
State and Local	619		3,554			3,521
Foreign	1,062		1,189			1,878
Total Current	$	7,517	$	13,432		$	20,075

Deferred
Federal	$	2,862	$	3,532		$	2,831
State and local	2,177		(2,142		)	(1,232		)
Foreign	759		354			(878		)
Total Deferred	$	5,798	$	1,744		$	721

Total income tax expense	$	13,315	$	15,176		$	20,796

The U.S. and foreign components of income from continuing operations before income taxes were as follows:

	Year Ended December 31,
In thousands	2014		2013		2012
United States	$	29,962	$	33,143	$	52,287
Foreign	7,344		6,474		3,905
Total income (loss) from continuing operations before income taxes	$	37,306	$	39,617	$	56,192

The differences between total income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate to income before income taxes were as follows:

	Year Ended December 31,
In thousands	2014			Rate		2013			Rate		2012			Rate
Computed expected income tax expense (benefit)	$	13,057		35	%	$	13,866		35	%	$	19,667		35	%
Net effect of state income taxes	1,817			5	%	918			2	%	2,501			4	%
Foreign subsidiary dividend inclusions	135			0	%	1,125			3	%	120			0	%
Foreign tax rate benefit	(749		)	-2	%	(570		)	-1	%	(366		)	-1	%
Change in beginning of year valuation allowance	(537		)	-1	%	(87		)	0	%	(1,225		)	-2	%
Other, net	(408		)	-1	%	(76		)	0	%	99			0	%
Income tax expense (benefit) for the period	$	13,315		36	%	$	15,176		38	%	$	20,796		37	%

Total income tax expense (benefit) was allocated as follows:

	Year Ended December 31,
In thousands	2014			2013			2012
Continuing operations	$	13,315		$	15,176		$	20,796
Discontinued operations	—			1,225			(48,959		)
Loss on sale	—			(9,047		)	(2,147		)
Stockholders’ equity	(9,527		)	17,373			(736		)
Total	$	3,788		$	24,727		$	(31,046	)

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:

	Year Ended December 31,
In thousands	2014			2013
Deferred tax assets
Deferred compensation and retirement plan	$	25,432		$	14,449
Accrued expenses not deductible until paid	3,925			4,430
Employee stock-based compensation	1,182			2,561
Accrued payroll not deductible until paid	948			2,270
Accounts receivable, net	1,175			1,345
Other, net	76			124
State income tax	60			269
Federal net operating loss carryforwards	130			130
Foreign net operating loss carryforwards	2,805			2,750
State net operating loss carryfowards	2,010			2,037
Foreign tax credit carryforwards	739			1,125
Capital loss carryforwards	7,182			6,713
Total gross deferred tax assets	45,664			38,203
Less valuation analysis	(10,933		)	(10,744		)
Net deferred tax assets	$	34,731		$	27,459

Deferred tax liabilities
Property, plant and equipment	$	(6,484	)	$	(7,250	)
Goodwill and other intangibles	(82,702		)	(78,301		)
Total gross deferred tax liabilities	(89,186		)	(85,551		)
Net deferred tax liabilities	$	(54,455	)	$	(58,092	)

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the expectation of future taxable income and that the deductible temporary differences will offset existing taxable temporary differences, we believe it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowances, at December 31, 2014 and 2013.

Net deferred taxes are recorded both as a current deferred income tax asset and as other long-term liabilities based upon the classification of the related assets and liabilities that give rise to the temporary difference. There are approximately $29.7 million and $19.8 million of deferred tax assets related to non-current items that are netted with long-term deferred tax liabilities at December 31, 2014 and 2013, respectively.

Harte Hanks or one of our subsidiaries files income tax returns in the U.S. federal, U.S. state and foreign jurisdictions. For U.S. federal, U.S. state and foreign returns, we are no longer subject to tax examinations for years prior to 2010.

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

In thousands
Balance at January 1, 2013	$	51
Additions for current year tax positions	—
Additions for prior year tax positions	—
Reductions for prior year tax positions	—
Lapse of statute	(24		)
Settlements	—
Balance at December 31, 2013	$	27

Additions for current year tax positions	$	—
Additions for prior year tax positions	—
Reductions for prior year tax positions	—
Lapse of statute	(27		)
Settlements	—
Balance at December 31, 2014	$	—

As of December 31, 2014 there is no federally effected unrecognized tax benefit to be recognized in future periods.

We have elected to classify any interest and penalties related to income taxes within income tax expense in our Consolidated Statements of Comprehensive Income (Loss). We did not recognize any tax benefits for the reduction of accrued interest and penalties associated with the reduction of the liability for unrecognized tax benefits during the year ended December 31, 2013, but recognized $0.1 million during the year ended December 31, 2014 and December 31, 2013. We did not have any interest and penalties accrued at December 31, 2014 or 2013.

As of December 31, 2014, we had net operating loss carryforwards that are available to reduce future taxable income and that will begin to expire in 2029.

The valuation allowance for deferred tax assets was $10.9 million and $10.7 million at December 31, 2014 and 2013. The net change in valuation allowance was an increase of $0.2 million in 2014 and $8.3 million in 2013. The valuation allowance at December 31, 2014 and December 31, 2013 relates to net operating loss, capital loss, and foreign tax credit carryforwards, which are not expected to be realized. As part of our assessment of the realizability of our deferred tax assets, and based on the expectations of future taxable income and that the deductible temporary differences will offset existing taxable temporary differences, we reduced our January 1, 2012 valuation allowance associated with the Florida Shoppers net operating loss by $1.0 million.

Deferred income taxes have not been provided on the undistributed earnings of our foreign subsidiaries as these earnings have been, and under current plans will continue to be, permanently reinvested in these subsidiaries. As of December 31, 2014, the net cumulative undistributed earnings of these subsidiaries were approximately $1.9 million. If those earnings were not considered permanently reinvested, U.S. federal deferred income taxes would have been recorded, after consideration of U.S. foreign tax credits. However, it is not practicable to estimate the amount of additional taxes which may be payable upon the distribution of their cumulative earnings. As of December 31, 2014 approximately $4.7 million of cash is located within certain foreign subsidiaries that if repatriated would require that we accrue and pay approximately $0.9 million in additional tax.

Cash payments for income taxes were $4.9 million, $11.3 million and $13.6 million in 2014, 2013 and 2012, respectively.