INCOME TAXES

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



	Year Ended June 30,
	2016		2015		2014
Current:
Federal	$	66,574	$	70,555	$	77,937
State	7,571		5,221		10,166
Deferred:
Federal	34,355		28,018		10,636
State	3,169		1,425		2,116
	$	111,669	$	105,219	$	100,855

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



	June 30,
	2016			2015
Deferred tax assets:
Contract and service revenues and costs	$	69,597		$	68,503
Expense reserves (bad debts, insurance, franchise tax and vacation)	14,770			14,612
Net operating loss carryforwards	3,543			3,682
Other, net	2,090			1,493
Total gross deferred tax assets	90,000			88,290
Valuation allowance	(608		)	(650		)
Net deferred tax assets	89,392			87,640

Deferred tax liabilities:
Accelerated tax depreciation	(40,857		)	(32,331		)
Accelerated tax amortization	(160,719		)	(142,776		)
Contract and service revenues and costs	(76,417		)	(69,790		)
Total gross deferred liabilities	(277,993		)	(244,897		)

Net deferred tax liability	$	(188,601	)	$	(157,257	)

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



	Year Ended June 30,
	2016		2015		2014
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	1.9	%	1.4	%	2.8	%
Research and development credit	(2.5	)%	(1.5	)%	(0.8	)%
Domestic production activities deduction	(1.9	)%	(2.0	)%	(2.2	)%
Tax over book basis in subsidiary stock	(1.7	)%	—	%	—	%
Other (net)	0.2	%	0.4	%	0.3	%
	31.0	%	33.3	%	35.1	%

As of June 30, 2016, we have $6,048 of gross 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, 2016, we have state NOL carryforwards with a tax-effected value of $1,470. The federal and state losses have varying expiration dates, ranging from 2016 to 2035. Based on state tax rules which restrict our utilization of these losses, we believe it is more likely than not that $608 of these losses will expire unutilized. Accordingly, a valuation allowance of $608 and $650 has been recorded against these assets as of June 30, 2016 and 2015, respectively.

The Company paid income taxes of $90,307, $61,885, and $83,014 in 2016, 2015, and 2014 respectively.

At June 30, 2016, the Company had $7,421 of gross unrecognized tax benefits, $5,986 of which, if recognized, would affect our effective tax rate. At June 30, 2015, the Company had $7,104 of unrecognized tax benefits, $5,193 of which, if recognized, would affect our effective tax rate. We had accrued interest and penalties of $1,178 and $1,120 related to uncertain tax positions at June 30, 2016 and 2015, respectively. The income tax provision included interest expense and penalties (or benefits) on unrecognized tax benefits of $47, $(155), and $582 in the years ending June 30, 2016, 2015, and 2014, respectively.

A reconciliation of the unrecognized tax benefits for the years ended June 30, 2016 and 2015 follows:



	Unrecognized Tax Benefits
Balance at July 1, 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		)
Reductions related to expirations of statute of limitations	(1,510		)
Balance at June 30, 2015	7,104
Additions for current year tax positions	1,581
Reductions for current year tax positions	(56		)
Additions for prior year tax positions	507
Reductions for prior year tax positions	(38		)
Reductions related to expirations of statute of limitations	(1,677		)
Balance at June 30, 2016	$	7,421

During the period ended June 30, 2016, the Internal Revenue Service commenced an examination of the Company’s U.S. federal income tax returns for fiscal years ended June 30, 2014 and 2015. The examination is ongoing. At this time, it is anticipated that the examination will not result in a material change to the Company’s financial statements.

The U.S. federal and state income tax returns for June 30, 2013 and all subsequent years remain subject to examination as of June 30, 2016 under statute of limitations rules. We anticipate that potential changes due to lapsing statutes of limitations and examination closures could reduce the unrecognized tax benefits balance by $1,500 - $3,000 within twelve months of June 30, 2016.