INCOME TAXES

The provision for income taxes consists of the following:



	Year Ended June 30,
	2017		2016		2015
Current:
Federal	$	80,752	$	66,574	$	70,555
State	9,469		7,571		5,221
Deferred:
Federal	25,756		34,355		28,018
State	5,184		3,169		1,425
	$	121,161	$	111,669	$	105,219

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



	June 30,
	2017			2016
Deferred tax assets:
Contract and service revenues and costs	$	54,908		$	69,597
Expense reserves (bad debts, insurance, franchise tax and vacation)	14,648			14,770
Net operating loss carryforwards	3,547			3,543
Other, net	2,119			2,090
Total gross deferred tax assets	75,222			90,000
Valuation allowance	(357		)	(608		)
Net deferred tax assets	74,865			89,392

Deferred tax liabilities:
Accelerated tax depreciation	(36,994		)	(40,857		)
Accelerated tax amortization	(178,999		)	(160,719		)
Contract and service revenues and costs	(78,413		)	(76,417		)
Total gross deferred liabilities	(294,406		)	(277,993		)

Net deferred tax liability	$	(219,541	)	$	(188,601	)

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



	Year Ended June 30,
	2017		2016		2015
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	2.6	%	1.9	%	1.4	%
Research and development credit	(2.0	)%	(2.5	)%	(1.5	)%
Domestic production activities deduction	(2.1	)%	(1.9	)%	(2.0	)%
Tax over book basis in subsidiary stock	—	%	(1.7	)%	—	%
Tax effects of share-based payments	(0.7	)%	—	%	—	%
Other (net)	0.2	%	0.2	%	0.4	%
	33.0	%	31.0	%	33.3	%

As of June 30, 2017, we have $5,193 of gross federal 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, 2017, we have state NOL carryforwards with a tax-effected value of $1,731. The federal and state losses have varying expiration dates, ranging from fiscal year 2017 to 2036. Based on state tax rules which restrict our utilization of these losses, we believe it is more likely than not that $357 of these losses will expire unutilized. Accordingly, a valuation allowance of $357 and $608 has been recorded against these assets as of June 30, 2017 and 2016, respectively.

The Company paid income taxes, net of refunds, of $96,074, $90,307, and $61,885 in 2017, 2016, and 2015 respectively.

At June 30, 2017, the Company had $5,449 of gross unrecognized tax benefits, $3,990 of which, if recognized, would affect our effective tax rate. At June 30, 2016, the Company had $7,421 of unrecognized tax benefits, $5,986 of which, if recognized, would affect our effective tax rate. We had accrued interest and penalties of $995 and $1,178 related to uncertain tax positions at June 30, 2017 and 2016, respectively. The income tax provision included interest expense and penalties (or benefits) on unrecognized tax benefits of $(105), $47, and $(155) in the years ending June 30, 2017, 2016, and 2015, respectively.

A reconciliation of the unrecognized tax benefits for the years ended June 30, 2017 and 2016 follows:



	Unrecognized Tax Benefits
Balance at July 1, 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
Additions for current year tax positions	1,457
Reductions for current year tax positions	—
Additions for prior year tax positions	23
Reductions for prior year tax positions	(766		)
Settlements	(1,040		)
Reductions related to expirations of statute of limitations	(1,646		)
Balance at June 30, 2017	$	5,449

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 was completed during the quarter ending December 31, 2016. The closing of the examination did not result in a material change to the Company’s financial statements.

The U.S. federal and state income tax returns for June 30, 2014 and all subsequent years remain subject to examination as of June 30, 2017 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 $500 - $1,500 within twelve months of June 30, 2017.