6) Income Taxes

Income tax expense consisted of the following:


	Years ended April 30,
	2018		2017		2016
	(In thousands)
Current:
Federal	$	2,298	$	5,643	$	4,105
State		743		676		665

		3,041		6,319		4,770

Deferred:
Federal		321		558		(299	)
State		300		117		(13	)

		621		675		(312	)

	$	3,662	$	6,994	$	4,458

The Company’s actual income tax expense differs from the “expected” income tax expense calculated by applying our blended U.S. Federal statutory tax rate of 30.3% for fiscal year 2018 and the Federal statutory rate of 35% for fiscal years 2017 and 2016, to earnings before income taxes as follows:


	Years ended April 30,
	2018			2017			2016
	(In thousands)
Computed “expected” income tax expense	$	4,763		$	7,565		$	5,145
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax effect		891			592			435
Research and development credits		(493	)		(520	)		(694	)
Change in valuation allowance for deferred tax assets		4			(293	)		(2	)
Tax contingencies		(13	)		(42	)		(13	)
NQ stock options granted		102			106			26
Rate change – tax reform		(1,206	)		—			—
Other, net, including permanent items		(386	)		(414	)		(439	)

	$	3,662		$	6,994		$	4,458

Our effective income tax rates were 23%, 32% and 30% in 2018, 2017 and 2016, respectively. Our effective income tax rate takes into account the source of taxable income, by state, and available income tax credits. The provision for income taxes in 2018, 2017 and 2016 includes approximately $186,000, $253,000 and $247,000, respectively, in income tax benefits related to the tax benefits realized from stock option deductions.

The significant components of deferred income tax (benefit) expense attributable to income from continuing operations before income taxes for the years ended April 30, 2018, 2017, and 2016 are as follows:


	Years ended April 30,
	2018			2017			2016
	(In thousands)
Deferred tax expense/(benefit)	$	1,823		$	968		$	(310	)
Deferred tax benefit related to tax reform		(1,206	)		—			—
Increase (decrease) in the valuation allowance for deferred tax assets		4			(293	)		(2	)

	$	621		$	675		$	(312	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at April 30, 2018 and 2017 are presented as follows:


	2018			2017
	(In thousands)
Deferred tax assets:
Accruals and expenses not deducted for tax purposes	$	339		$	461
State net operating loss carryforwards		226			295
Fixed asset basis differences		883			1,384
Nonqualified stock options		762			1,679
Deferred revenue		53			234

Total gross deferred tax assets		2,263			4,053
Less valuation allowance		170			166

Net deferred tax		2,093			3,887

Deferred tax liabilities:
Capitalized computer software development costs		(2,432	)		(3,298	)

Net gains/losses on trading securities		(938	)		(1,019	)

Goodwill and intangible assets basis differences		(601	)		(939	)
Deferred agent commissions		(737	)		(625	)

Total gross deferred tax liabilities		(4,708	)		(5,881	)

Net deferred tax liabilities	$	(2,615	)	$	(1,994	)

At April 30, 2018, the Company has approximately $5.7 million of various state net operating loss carryforwards which are available to offset future state taxable income, if any, through 2035.

In assessing the realizability of 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 the generation of 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 reversal of deferred tax liabilities and expected future profitability, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances, at April 30, 2018.

The Company applies the accounting provisions which require us to prescribe a recognition threshold and measurement attribution for the financial statement recognition and measurement of a tax position taken or expected to be taken within an income tax return.

As of April 30, 2018, 2017 and 2016, we have recorded approximately $56,000, $57,000, and $101,000, respectively, of unrecognized tax benefits, inclusive of interest and penalties, all of which would impact our effective tax rate if recognized. The liability for unrecognized tax benefits is recorded net of any federal tax benefit that would result from payment.

We recognize potential accrued interest and penalties related to unrecognized tax benefits within income tax expense. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. As of April 30, 2018 and 2017, we had recorded a liability for potential penalties and interest of approximately $24,000 and $24,000, respectively, related to uncertain tax positions.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows, excluding interest and penalties (in thousands):


	2018			2017
Balance at beginning of the period	$	33		$	54
Decreases as a result of positions taken during prior periods		(1	)		(25	)
Increases as a result of positions taken during the current period		—			4

Balance at April 30,	$	32		$	33

We conduct business globally and, as a result, file consolidated income tax returns in the United States Federal jurisdiction and in many state and foreign jurisdictions. We are no longer subject to state and local, or non-U.S.income tax examinations for years prior to 2001. We are no longer subject to U.S. Federal income tax examination for years prior to 2014.

During the years ended April 30, 2018 and 2017, we recorded research and development state tax credits against payroll taxes of approximately $290,000 and $436,000, respectively, which reduced general and administrative expenses by the same amount.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered our U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018. For fiscal year 2018, our blended U.S. federal statutory tax rate is 30.3%. This is the result of using the tax rate of 35% for the first eight months of fiscal year 2018 and the reduced tax rate of 21% for the final four months of fiscal year 2018. During the year ended April 30, 2018, we recorded a $1.2 million benefit from the impact of changes in the tax rate, primarily on deferred tax assets and liabilities, which was included in income tax expense on our consolidated statement of operations and deferred income taxes on our consolidated balance sheet. We remeasured our deferred taxes to reflect the reduced rate that will apply when these deferred taxes are settled or realized in future periods. To calculate the remeasurement of deferred taxes, we estimated when the existing deferred taxes will be settled or realized.