Note 4 - Income Taxes

Income tax expense for the three months and nine months ended September 30, 2013, and 2012, differs from the amounts that would be provided by applying the statutory United States federal income tax rate to income before income taxes as a result of the estimated effect of percentage depletion, the effect of state income taxes, valuation allowance adjustments, and other permanent differences. The quarterly rate can also be impacted by the proportional effects of forecasted net income as of each period end presented.

The provision for income taxes consists of the following:



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2012			2013			2012
	(in thousands)
Current portion of income tax expense (benefit):
Federal	$	—		$	—		$	—		$	—
State	(46		)	174			302			435
Deferred portion of income tax expense (benefit)	42,380			(22,910		)	98,619			7,305
Total income tax expense (benefit)	$	42,334		$	(22,736	)	$	98,921		$	7,740
	37.5		%	37.2		%	37.6		%	37.5		%

On a year-to-date basis, a change in the Company’s effective tax rate between reported periods will generally reflect differences in its estimated highest marginal state tax rate due to changes in the composition of income from Company activities among various state tax jurisdictions. Cumulative effects of state rate changes are reflected in the period legislation is enacted. Similarly, a tax benefit from a research and development (“R&D”) study is generally recognized in the period claimed. The year-to-date 2013 effective rate is essentially flat compared 2012, but reflects changes in the mix of permanent differences.

The Company and its subsidiaries file federal income tax returns and various state income tax returns. With certain exceptions, the Company is no longer subject to United States federal or state income tax examinations by these tax authorities for years before 2007. Federal tax law allowing for the calculation of an R&D credit was enacted in 2013, but the Company has not yet commissioned a study to calculate the credit for the 2012 or 2013 tax years. The table above excludes the impact for any credit that would be allowed under the new law. The Internal Revenue Service (“IRS”) initiated an audit in the first quarter of 2012 related to R&D tax credits claimed by the Company for the 2007 through 2010 tax years. On April 23, 2013, the IRS issued a Notice of Proposed Adjustment disallowing $4.6 million of R&D tax credits claimed for open tax years during the audit period. The Company maintains it is entitled to the claimed credits, has timely appealed the IRS’s decision, and agreed to a one-year federal statute extension for the 2008 and 2009 tax years.

On September 13, 2013, the United States Department of the Treasury and IRS issued the final and re-proposed tangible property regulations effective for tax years beginning January 1, 2014. The Company determined that its tax practices already take into account the regulations’ requirements or such requirements are not material to the Company’s financial statements.