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:



	2015		2014		2013
Current:
Federal	$	14,597	$	16,580	$	16,741
State		3,576		3,490		2,688
		18,173		20,070		19,429

Deferred:
Federal		10,592		5,328		439
State		(1,528)		450		(270)
		9,064		5,778		169
Provision for income taxes	$	27,237	$	25,848	$	19,598

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:


	2015		2014		2013
Amount computed by applying a tax rate of 35%	$	32,103	$	25,818	$	19,705
State income taxes (net of federal income tax benefit)		1,330		2,562		1,572
Employment related and other tax credits, net		(2,096)		(1,537)		(1,572)
Federal tax benefit of statutory tax deduction		(4,093)		-		-
Other		(7)		(995)		(107)
Provision for income taxes	$	27,237	$	25,848	$	19,598

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


	2015		2014
Deferred tax assets:
Allowance for doubtful accounts and notes receivable	$	411	$	677
Leasing transactions		3,260		3,252
Deferred income		2,810		1,773
Accrued liabilities		5,630		3,399
Stock compensation		2,831		4,921
Other		541		688
State net operating losses		14,222		11,305
Total deferred tax assets		29,705		26,015
Valuation allowance		(12,041)		(11,305)
Total deferred tax assets after valuation allowance	$	17,664	$	14,710

Deferred tax liabilities:
Prepaid expenses	$	(1,315)	$	(1,498)
Investment in partnerships, including differences in capitalization,
depreciation and direct financing leases		(3,711)		(2,954)
Property, equipment and capital leases		(31,167)		(24,655)
Intangibles and other assets		(20,341)		(19,514)
Debt extinguishment		(2,515)		(3,353)
Total deferred tax liabilities		(59,049)		(51,974)
Net deferred tax liabilities	$	(41,385)	$	(37,264)

Net deferred tax assets and liabilities are classified as follows:
Current	$	2,164	$	347
Noncurrent		(43,549)		(37,611)
Total	$	(41,385)	$	(37,264)

State net operating loss carryforwards expire beginning in December 2015 through May 2036. Management does not believe the Company will be able to realize the state net operating loss carryforwards utilizing future income exclusive of the reversal of existing deferred tax liabilities and therefore has provided a valuation allowance of $12.0 million and $11.3 million as of August 31, 2015 and 2014, respectively.

As of August 31, 2015 and 2014, the Company had approximately $3.7 million and $2.5 million of unrecognized tax benefits, including approximately $0.4 million and $0.4 million of accrued interest and penalty, respectively. If recognized, these benefits would favorably impact the effective tax rate. The liability for unrecognized tax benefits increased $1.2 million in fiscal year 2015. The increase was primarily related to recognition of an uncertain position related to current and prior years’ federal tax deductions. This entire change in balance 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. During the year ended August 31, 2015, the Company recognized net expenses of $0.1 million. The Company recognized negligible net expenses in fiscal year 2014 and a net benefit of $0.4 million in fiscal year 2013.

A reconciliation of unrecognized tax benefits is as follows for fiscal years ended August 31:



	2015		2014
Balance at beginning of year	$	2,461	$	2,583
Additions based on tax positions related to the current year		254		255
Additions for tax positions of prior years		937		115
Reductions for tax positions of prior years		-		(492)
Balance at end of year	$	3,652	$	2,461

The Company or one of its subsidiaries is subject to U.S. federal income tax and income tax in multiple U.S. state jurisdictions. At August 31, 2015, 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. The Company anticipates that the results of any 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 $0.1 million to a decrease of $3.0 million depending on the timing and terms of the examination resolutions.