NOTE 17 – INCOME TAXES

The provision for income taxes consisted of the following:

	Year ended December 31,
	2014			2013			2012
	(thousands of dollars)
Current federal provision	$	8,756		$	6,748		$	4,821
Current state provision		296			233			199

Deferred federal provision (benefit)		(1,893	)		1,173			882
Deferred state provision (benefit)		(12	)		(7	)		2

Income tax expense	$	7,147		$	8,147		$	5,904

The difference between the effective tax rate in income tax expense and the Federal statutory rate of 35% for the years ended December 31, 2014, 2013, and 2012, is as follows:

	2014			2013			2012
	(thousands of dollars)
Income taxes at U.S. statutory rate	$	7,952		$	9,675		$	5,679
State taxes, net of federal benefit		181			139			132
Permanent and other items		(915	)		(644	)		(250	)
Increase (decrease) in valuation allowance		(71	)		(1,023	)		343
Total tax expense	$	7,147		$	8,147		$	5,904

Permanent and other items primarily include non-deductible expenses offset by the manufacturers’ deduction under §199 of the Internal Revenue Code and increase in the effective tax rate to 35% during the year ended December 31, 2012.

Tax effects of temporary differences that give rise to significant portions of federal and state deferred tax assets and deferred tax liabilities were as follows:

	December 31,
	2014			2013
	(thousands of dollars)
Deferred tax liabilities:
Plant, pipeline and equipment	$	(8,352	)	$	(8,507	)
Other assets		-			(43	)
Investment in AMAK		( 4,382	)		( 4,757	)
Total deferred tax liabilities	$	(12,734	)	$	(13,307	)

Deferred tax assets:
Accounts receivable		276			260
Inventory		1,018			131
Mineral interests		376			376
Unrealized loss on swap agreements		196			214
Environmental		-			71
Post-retirement benefits		327			373
Stock-based compensation		1,705			1,015
Intangible assets		229			-
Deferred revenue		164			654
Gross deferred tax assets		4,291			3,094
Valuation allowance		(376	)		(447	)
Total net deferred tax assets	$	3,915		$	2,647
Net deferred tax liabilities	$	(8,819	)	$	(10,660	)

The current and non-current classifications of the deferred tax balances are as follows:

	2014			2013
	(thousands of dollars)
Current:
Deferred tax asset	$	1,652		$	1,324

Non-current:

Deferred tax assets		3,269			1,764
Deferred tax liability		(13,364	)		(13,301	)
Valuation allowance		(376	)		(447	)
Non-current deferred tax liability, net		(10,471	)		(11,984	)

Total deferred liabilities, net	$	(8,819	)	$	(10,660	)

We have provided a valuation allowance in 2014 and 2013 against certain deferred tax assets because of uncertainties regarding their realization. The 2014 decrease in the valuation allowance of $71,000 is due largely to changes in our environmental accrual. The 2013 decrease in the valuation allowance of $1,023,000 is due largely to changes in our investment in AMAK.

We had no Saudi Arabian income tax liability in 2014, 2013, or 2012.

We file an income tax return in the U.S. federal jurisdiction and a margin tax return in Texas. Tax returns for various jurisdictions remain open for examination for the years 2010 through 2013.