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:



	2018			2017			2016
Current:
Federal	$	15,597		$	30,352		$	20,137
State	2,949			3,921			3,791
	18,546			34,273			23,928

Deferred:
Federal	(16,460		)	(2,378		)	4,372
State	648			(91		)	137
	(15,812		)	(2,469		)	4,509
Provision for income taxes	$	2,734		$	31,804		$	28,437

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:



	2018		2017		2016
Amount computed by applying the statutory federal tax rate	25.7	%	35.0	%	35.0	%
State income taxes (net of federal income tax benefit)	3.8		2.6		2.8
Employment related and other tax credits, net	(1.8	)	(1.9	)	(2.5	)
Change in uncertain tax positions	0.2		—		(3.3	)
Federal tax benefit of statutory tax deduction	(1.3	)	(1.6	)	(1.4	)
Stock option excess tax benefit	(2.9	)	(1.0	)	—
Deferred tax revaluation	(19.1	)	—		—
Other	(0.9	)	0.2		0.1
Provision for income taxes	3.7	%	33.3	%	30.7	%

On December 22, 2017, the Tax Cuts and Job Act ("TCJA") was signed into law, significantly impacting several sections of the Internal Revenue Code. The most significant impacts on the Company for fiscal year 2018 include:


•	Effective January 1, 2018, the U.S. corporate federal statutory income tax rate was reduced from 35% to 21%. Because of our fiscal year end, the Company’s blended statutory federal tax rate is 25.7% for fiscal year 2018 and 21% for fiscal year 2019 and thereafter.

•

The Company remeasured its existing deferred tax assets and liabilities at the rate the Company expected to be in effect when those deferred taxes would be realized (either 25.7% if in fiscal year 2018 or 21.0% for fiscal year 2019 and thereafter). The Company recognized a discrete benefit from the deferred tax remeasurement of approximately $14.1 million in the second quarter of fiscal year 2018.

In December 2017, the Securities and Exchange Commission provided guidance allowing registrants to record provisional amounts, during a specified measurement period, when the necessary information is not available, prepared or analyzed in reasonable detail to account for the impact of the TCJA. Accordingly, during the second and third quarters of fiscal year 2018, we reported the revaluation of our deferred tax assets and liabilities based on provisional amounts. As of August 31, 2018, we have completed our analysis of the revaluation of our deferred tax assets and liabilities and have no material changes to the discrete benefit recognized in the second quarter of fiscal year 2018. We continue to assess the impacts of the TCJA on future fiscal years and monitor the Internal Revenue Service guidance intended to interpret the most complex provisions.

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



	2018			2017
Deferred tax assets:
Allowance for doubtful accounts and notes receivable	$	661		$	419
Leasing transactions	1,928			3,083
Deferred income	1,846			3,011
Accrued liabilities	2,292			4,339
Stock compensation	1,553			3,156
Other	59			929
State net operating losses	18,659			18,031
Total deferred tax assets	26,998			32,968
Valuation allowance	(17,117		)	(16,254		)
Total deferred tax assets after valuation allowance	$	9,881		$	16,714

Deferred tax liabilities:
Prepaid expenses	$	(798	)	$	(956	)
Investment in partnerships, including differences in capitalization,
depreciation and direct financing leases	(3,083		)	(4,026		)
Property, equipment and capital leases	(12,603		)	(23,756		)
Intangibles and other assets	(14,837		)	(22,983		)
Debt extinguishment	—			(838		)
Direct financing leases	(2,786		)	(4,256		)
Total deferred tax liabilities	(34,107		)	(56,815		)
Net deferred tax liabilities (noncurrent)	$	(24,226	)	$	(40,101	)

State net operating loss carryforwards expire beginning in December 2018 through May 2039. 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 $17.1 million and $16.3 million as of August 31, 2018 and 2017, respectively.

As of August 31, 2018 and 2017, the Company had approximately $0.8 million and $0.6 million of unrecognized tax benefits, including approximately $0.4 million of accrued interest and penalty for each year. If recognized, these benefits would favorably impact the effective 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, 2018, 2017 and 2016, the Company recognized a net expense of $0.1 million, a negligible net expense and a net benefit of $0.1 million, respectively.

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



	2018		2017
Balance at beginning of year	$	643	$	625
Additions for tax positions of prior years	147		18
Balance at end of year	$	790	$	643

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, 2018, 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 2014. 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 $0.8 million depending on the timing and terms of the examination resolutions.