INCOME TAXES

Deferred Income Taxes

Deferred income taxes reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes. Primarily due to differences in depreciation rates for federal income tax purposes and for financial reporting purposes, the Company has generated a net deferred tax liability.

Deferred tax (assets) and liabilities comprise the following at December 31 (in millions):



	2013			2012
Excess of tax over book depreciation	$	919		$	842
Other—net	21			19
Gross deferred tax liabilities	940			861

Mileage Plan	(185		)	(265		)
AMT and other tax credits	—			(1		)
Inventory obsolescence	(18		)	(15		)
Deferred gains	(12		)	(13		)
Employee benefits	(85		)	(230		)
Fuel hedge contracts	(14		)	(18		)
Other—net	(30		)	(21		)
Gross deferred tax assets	(344		)	(563		)
Net deferred tax liabilities	596			298

Current deferred tax asset	(113		)	(148		)
Noncurrent deferred tax liability	709			446
Net deferred tax liability	$	596		$	298

The Company has concluded that it is more likely than not that its deferred tax assets will be realizable and thus no valuation allowance has been recorded as of December 31, 2013. This conclusion is based on the expected future reversals of existing taxable temporary differences, anticipated future taxable income, and the potential for future tax planning strategies to generate taxable income, if needed. The Company will continue to reassess the need for a valuation allowance during each future reporting period.

Components of Income Tax Expense

The components of income tax expense were as follows (in millions):



	2013		2012		2011
Current tax expense (benefit):
Federal	$	145	83		$	—
State	17		11		4
Total current	162		94		4

Deferred tax expense:
Federal	131		94		135
State	15		10		10
Total deferred	146		104		145
Total tax expense related to income	$	308	$	198	$	149

Income Tax Rate Reconciliation

Income tax expense reconciles to the amount computed by applying the U.S. federal rate of 35% to income before income tax and accounting change as follows (in millions):



	2013			2012			2011
Income before income tax	$	816		$	514		$	394

Expected tax expense	286			180			138
Nondeductible expenses	4			3			1
State income taxes	21			14			10
Other—net	(3		)	1			—
Actual tax expense	$	308		$	198		$	149

Effective tax rate	37.7		%	38.5		%	37.9		%

Uncertain Tax Positions

The Company has identified its federal tax return and its state tax returns in Alaska, Oregon, and California as “major” tax jurisdictions. A summary of the Company's jurisdictions and the periods that are subject to examination are as follows:



Jurisdiction	Period
Federal	2010 to 2012
Alaska	2010 to 2012
California	2009 to 2012
Oregon	2002 to 2012

The 2002 to 2007 Oregon tax returns are subject to examination only to the extent of net operating loss carryforwards from those years that were utilized in 2010 and later years.

At December 31, 2013, the total amount of unrecognized tax benefits is recorded as a liability, all of which would impact the effective tax rate. Unrecognized tax benefits on uncertain tax positions were not material as of December 31, 2013, 2012 and 2011. No interest or penalties related to these tax positions were accrued as of December 31, 2013.