INCOME TAXES

The provision for income taxes from continuing operations consists of the following:



	Year Ended June 30,
	2015		2014		2013
Current:
Federal	$	70,555	$	77,937	$	54,574
State	5,221		10,166		4,540
Deferred:
Federal	28,018		10,636		14,689
State	1,425		2,116		3,647
	$	105,219	$	100,855	$	77,450

The tax effects of temporary differences related to deferred taxes shown on the balance sheets were:



	June 30,
	2015			2014
Deferred tax assets:
Contract and service revenues and costs	$	68,503		$	71,383
Expense reserves (bad debts, insurance, franchise tax and vacation)	14,612			14,776
Net operating loss carryforwards	3,682			4,218
Other, net	1,493			1,148
	88,290			91,525

Deferred tax liabilities:
Accelerated tax depreciation	(32,331		)	(29,247		)
Accelerated tax amortization	(142,776		)	(125,054		)
Contract and service revenues and costs	(69,790		)	(64,338		)
	(244,897		)	(218,639		)

Net deferred tax liability before valuation allowance	(156,607		)	(127,114		)
Valuation allowance	(650		)	(700		)
Net deferred tax liability	$	(157,257	)	$	(127,814	)

The deferred taxes are classified on the balance sheets as follows:



	2015			2014
Deferred income taxes (current)	$	(7,034	)	$	(30,094	)
Deferred income taxes (long-term)	(150,223		)	(97,720		)
	$	(157,257	)	$	(127,814	)

The following analysis reconciles the statutory federal income tax rate to the effective income tax rates reflected above:



	Year Ended June 30,
	2015		2014		2013
Computed "expected" tax expense	35.0	%	35.0	%	35.0	%
Increase (reduction) in taxes resulting from:
State income taxes, net of federal income tax benefits	1.4	%	2.8	%	2.2	%
Research and development credit	(1.5	)%	(0.8	)%	(3.5	)%
Domestic production activities deduction	(2.0	)%	(2.2	)%	(2.3	)%
Other (net)	0.4	%	0.3	%	0.2	%
	33.3	%	35.1	%	31.6	%

As of June 30, 2015, we have $6,903 of net operating loss (“NOL”) carryforwards pertaining to the acquisition of Goldleaf Financial Solutions, Inc., which are expected to be utilized after the application of IRC Section 382. Separately, as of June 30, 2015, we had state NOL carryforwards of $1,643. The federal and state losses have varying expiration dates, ranging from 2015 to 2034. Based on state tax rules which restrict our utilization of these losses, we believe it is more likely than not that $650 of these losses will expire unutilized. Accordingly, a valuation allowance of $650 and $700 has been recorded against these assets as of June 30, 2015 and 2014, respectively.

The Company paid income taxes of $61,885, $83,014, and $54,815 in 2015, 2014, and 2013 respectively.

At June 30, 2014, the Company had $7,834 of unrecognized tax benefits, $5,366 of which, if recognized, would affect our effective tax rate. At June 30, 2015, the Company had $7,104 of gross unrecognized tax benefits, $5,193 of which, if recognized, would affect our effective tax rate. We had accrued interest and penalties of $1,120 and $1,315 related to uncertain tax positions at June 30, 2015 and 2014, respectively. The income tax provision included interest expense and penalties (or benefits) on unrecognized tax benefits of $(155), $582, and $(60) in the years ending June 30, 2015, 2014, and 2013, respectively.

A reconciliation of the unrecognized tax benefits for the years ended June 30, 2015 and 2014 follows:



	Unrecognized Tax Benefits
Balance at July 1, 2013	$	4,890
Additions for current year tax positions	1,380
Reductions for current year tax positions	—
Additions for prior year tax positions	1,662
Reductions for prior year tax positions	(1		)
Settlements	—
Reductions related to expirations of statute of limitations	(97		)
Balance at June 30, 2014	7,834
Additions for current year tax positions	1,351
Reductions for current year tax positions	(56		)
Additions for prior year tax positions	483
Reductions for prior year tax positions	(998		)
Settlements	—
Reductions related to expirations of statute of limitations	(1,510		)
Balance at June 30, 2015	$	7,104

The U.S. federal and state income tax returns for June 30, 2012 and all subsequent years remain subject to examination as of June 30, 2015 under statute of limitations rules. We anticipate potential changes could reduce the unrecognized tax benefits balance by $1,500 - $2,500 within twelve months of June 30, 2015.