12. Income Taxes

Effective Income Tax Rate – Three and Nine Months Ended September 30, 2017

The Company’s estimated effective income tax rate for the three months ended September 30, 2017 of 48.5% resulted in income tax expense of $7,520. The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to a valuation allowance on foreign net operating losses and state and local income taxes.

The Company’s estimated effective income tax rate for the nine months ended September 30, 2017 of 48.7% resulted in income tax expense of $25,582. The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to a valuation allowance on foreign net operating losses, tax shortfalls associated with the vesting of stock-based compensation awards and state and local income taxes.

Effective January 1, 2017, US GAAP was amended with the intention to simplify the accounting for stock-based compensation. This includes the requirement to record the tax effects related to stock-based compensation within income tax expense, rather than additional paid-in capital, when applicable. Therefore, tax shortfalls (and tax windfalls) associated with the vesting of stock-based compensation awards are now included within income tax expense. This new guidance resulted in the recognition of $248 and $1,338 of income tax expense associated with tax shortfalls recognized upon vesting of stock-based compensation awards for the three and nine months ended September 30, 2017, respectively.

Effective Income Tax Rate – Three and Nine Months Ended September 30, 2016

The Company’s estimated effective income tax rate for the three months ended September 30, 2016 of 44.1% resulted in income tax expense of $6,270. The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to a valuation allowance on foreign net operating losses and state and local income taxes.

The Company’s estimated effective income tax rate for the nine months ended September 30, 2016 of 49.7% resulted in income tax expense of $23,375. The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due a valuation allowance on foreign net operating losses, the acquisition payment expense (which is non-deductible) and state and local income taxes.

Net Operating Losses – U.S.

The Company’s pre-tax federal net operating losses for tax purposes (“NOLs”) at September 30, 2017 was $3,671 which expire in 2024. The net operating loss carryforwards have been reduced by the impact of annual limitations described in the Internal Revenue Code Section 382 that arose as a result of an ownership change.

Net Operating Losses – International

The Company’s European and Canadian subsidiaries generated NOLs outside the U.S. These tax effected NOLs were $3,291 at September 30, 2017. The Company established a full valuation allowance related to these NOLs as it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.

Deferred Tax Assets

A summary of the components of the Company’s deferred tax asset is as follows:


	September 30, 2017			December 31, 2016
Deferred tax assets:
Accrued expenses	$	4,429		$	4,552
Stock-based compensation		3,688			5,382
NOLs - Foreign		3,291			4,551
Deferred rent liability		1,952			2,024
NOLs – U.S.		1,398			1,611
Unrealized losses, net		242			101
Other		329			227

Deferred tax assets		15,329			18,448

Deferred tax liabilities:
Fixed assets		2,386			2,405
Unrealized gains, net		2,641			—
Incentive compensation		338			1,365
Goodwill and intangible assets		522			301

Deferred tax liabilities		5,887			4,071

Total deferred tax assets less deferred tax liabilities		9,442			14,377
Less: valuation allowance		(3,291	)		(4,551	)

Deferred tax assets, net	$	6,151		$	9,826