11. 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:



	2016		2015		2014
Current:
Federal	$	20,137	$	14,597	$	16,580
State		3,791		3,576		3,490
		23,928		18,173		20,070

Deferred:
Federal		4,372		10,592		5,328
State		137		(1,528)		450
		4,509		9,064		5,778
Provision for income taxes	$	28,437	$	27,237	$	25,848

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:


	2016		2015		2014
Amount computed by applying a tax rate of 35%	$	32,377	$	32,103	$	25,818
State income taxes (net of federal income tax benefit)		2,553		1,330		2,562
Employment related and other tax credits, net		(2,324)		(2,096)		(1,537)
Change in uncertain tax positions		(3,027)		-		-
Federal tax benefit of statutory tax deduction		-		(4,093)		-
Other		(1,142)		(7)		(995)
Provision for income taxes	$	28,437	$	27,237	$	25,848

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


	2016		2015
Deferred tax assets:
Allowance for doubtful accounts and notes receivable	$	387	$	411
Leasing transactions		3,222		3,260
Deferred income		2,991		2,810
Accrued liabilities		6,187		5,630
Stock compensation		2,446		2,831
Other		685		541
State net operating losses		16,303		14,222
Total deferred tax assets		32,221		29,705
Valuation allowance		(14,638)		(12,041)
Total deferred tax assets after valuation allowance	$	17,583	$	17,664

Deferred tax liabilities:
Prepaid expenses	$	(1,119)	$	(1,315)
Investment in partnerships, including differences in capitalization,
depreciation and direct financing leases		(4,125)		(3,711)
Property, equipment and capital leases		(31,565)		(31,167)
Intangibles and other assets		(21,628)		(20,341)
Debt extinguishment		(1,676)		(2,515)
Total deferred tax liabilities		(60,113)		(59,049)
Net deferred tax liabilities	$	(42,530)	$	(41,385)

Net deferred tax assets and liabilities are classified as follows:
Current	$	-	$	2,164
Noncurrent		(42,530)		(43,549)
Total	$	(42,530)	$	(41,385)

State net operating loss carryforwards expire beginning in December 2016 through May 2037. 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 $14.6 million and $12.0 million as of August 31, 2016 and 2015, respectively.

As of August 31, 2016 and 2015, respectively, the Company had approximately $0.6 million and $3.7 million of unrecognized tax benefits, including approximately $0.3 million and $0.4 million of accrued interest and penalty. If recognized, these benefits would favorably impact the effective tax rate. The liability for unrecognized tax benefits decreased $3.0 million in fiscal year 2016. The decrease was primarily related to the favorable resolution of a federal tax audit and a statute of limitations expiration of a federal tax position. 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 years ended August 31, 2016 and 2015, the Company recognized a net benefit of $0.1 million and net expense of $0.1 million, respectively, and negligible net expenses in fiscal year 2014.

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



	2016		2015
Balance at beginning of year	$	3,652	$	2,461
Additions based on tax positions related to the current year		-		254
Additions for tax positions of prior years		725		937
Reductions for tax positions of prior years		(2,838)		-
Reductions due to settlement		(212)		-
Reductions due to statute expiration		(702)		-
Balance at end of year	$	625	$	3,652

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, 2016, 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 2012. 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 a negligible increase to a decrease of $0.6 million depending on the timing and terms of the examination resolutions.