12. Income Taxes

The Company’s income before the provision for income taxes is classified by source as domestic income.

The components of the provision for income taxes consist of the following for the years ended August 31:



	2013		2012		2011
Current:
Federal	$	16,741	$	17,851	$	5,060
State		2,688		3,892		2,223
		19,429		21,743		7,283

Deferred
Federal		439		180		1,876
State		(270)		(46)		(5)
		169		134		1,871
Provision for income taxes	$	19,598	$	21,877	$	9,154

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate due to the following for the fiscal years ended August 31:


	2013		2012		2011
Amount computed by applying a tax rate of 35%	$	19,705	$	20,287	$	9,933
State income taxes (net of federal income tax benefit)		229		928		602
Employment related and other tax credits, net		(1,572)		(1,291)		(1,730)
Adjustment of prior year deferred tax items		-		1,559		-
Valuation allowance for state net operating losses		1,343		972		839
Other		(107)		(578)		(490)
Provision for income taxes	$	19,598	$	21,877	$	9,154

During fiscal year 2012, the Company conducted a reconciliation of its tax basis balance sheet and identified certain adjustments which were recorded in fiscal year 2012 to appropriately reflect the Company’s current and deferred tax accounts. As a result of this reconciliation process, the Company recorded an additional income tax provision of $1.6 million for fiscal year 2012. Management of the Company evaluated the impact of this adjustment and concluded the effect of this adjustment was immaterial to the current and prior year financial statements.

Deferred tax assets and liabilities consist of the following at August 31:


	2013		2012
Deferred tax assets:
Allowance for doubtful accounts and notes receivable	$	898	$	1,145
Leasing transactions		3,599		3,346
Deferred income		4,124		6,004
Accrued liabilities		1,995		1,200
Stock compensation		8,024		11,899
Other		676		745
State net operating losses		8,703		7,361
Total deferred tax assets		28,019		31,700
Valuation allowance		(8,703)		(7,361)
Total deferred tax assets after valuation allowance	$	19,316	$	24,339

Deferred tax liabilities:
Prepaid expenses	$	(1,369)	$	(1,265)
Investment in partnerships, including differences in capitalization,
depreciation and direct financing leases		(2,061)		(2,408)
Property, equipment and capital leases		(25,433)		(24,466)
Intangibles and other assets		(18,337)		(16,965)
Debt extinguishment		(4,191)		(4,191)
Total deferred tax liabilities		(51,391)		(49,295)
Net deferred tax liabilities	$	(32,075)	$	(24,956)

Net deferred tax assets and liabilities are classified as follows:
Current	$	2,840	$	4,821
Noncurrent		(34,915)		(29,777)
Total	$	(32,075)	$	(24,956)

State net operating loss carryforwards expire beginning in December 2013 through May 2034. Management does not believe the Company will be able to realize the state net operating loss carryforwards and therefore has provided a valuation allowance of $8.7 million and $7.4 million as of August 31, 2013 and 2012, respectively.

As of August 31, 2013 and 2012, the Company had approximately $2.6 million and $5.5 million of unrecognized tax benefits, including approximately $0.3 million and $0.7 million of accrued interest and penalty, respectively. The liability for unrecognized tax benefits decreased $2.9 million in fiscal year 2013. The majority of the change was due to the favorable resolution of a federal tax audit, a statute of limitations expiration of a state tax position and a tax method change, offset by a new uncertain position related to a federal credit. Of this change, only $0.7 million impacted the Company’s tax rate.

The Company recognizes estimated interest and penalties as a component of its income tax expense, net of federal benefit, as a component of “Provision for income taxes” in the Consolidated Statements of Income and Comprehensive Income. During the years ended August 31, 2013, 2012 and 2011, the Company recognized net benefits of $0.4 million, $0.1 million and $0.5 million, respectively.

As of August 31, 2013, 2012 and 2011, there are $2.6 million, $1.9 million and $3.1 million, respectively, of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate. A reconciliation of unrecognized tax benefits is as follows for fiscal years ended August 31:



	2013		2012
Balance at beginning of year	$	5,451	$	4,775
Additions based on tax positions related to the current year		628		834
Additions for tax positions of prior years		960		1,670
Reductions for tax positions of prior years		(3,816)		(469)
Reductions for settlements		-		(68)
Reductions due to statute expiration		(640)		(1,291)
Balance at end of year	$	2,583	$	5,451

The Company or one of its subsidiaries is subject to U.S. federal income tax and income tax in multiple U.S. state jurisdictions. The Company is currently undergoing examinations or appeals by various state and federal authorities. The Company anticipates that the finalization of these examinations or appeals, combined with the expiration of applicable statutes of limitations and the additional accrual of interest related to unrecognized benefits on various return positions taken in years still open for examination, could result in a change to the liability for unrecognized tax benefits during the next 12 months ranging from an increase of $1.3 million to a decrease of $2.0 million depending on the timing and terms of the examination resolutions. At August 31, 2013, the Company was subject to income tax examinations for its U.S. federal income taxes and for state and local income taxes generally after fiscal year 2009.

At August 31, 2013 and 2012, the Company had an income tax receivable of $9.8 million and $10.3 million, respectively, primarily relating to expected refunds from amended tax returns. Based on information available at August 31, 2013, the Company anticipates receiving or being able to apply a majority of these refunds to other tax obligations during fiscal year 2014. As a result, $7.7 million was classified as current during fiscal year 2013.