NOTE 8. TAXES

Income Taxes

The Company’s income tax provision (benefit) consists of the following (in thousands):


	Years ended December 31,
	2018		2017		2016
Federal	$	8,680	$	9,933	$	12,834
State		518		417		477
Current tax provision		9,198		10,350		13,311
Federal		(659)		3,738		99
State		12		73		(52)
Deferred tax provision (benefit)		(647)		3,811		47
Total tax provision	$	8,551	$	14,161	$	13,358

In conformity with the adopted in 2017 amendment to Topic 718, Compensation-Stock Compensation: Improvements to Employee Share-based Payment Accounting (ASU 2016-09), all excess tax benefits and deficiencies are recognized as income tax expense in the Company’s Consolidated Statement of Operations. This will result in increased volatility in the Company’s effective tax rate.

The income tax provision differs from that computed at the federal statutory rate as follows:


	Years ended December 31,
	2018		2017		2016
Federal tax at the statutory rate	21.00	%	35.00	%	35.00	%
State tax (net of federal benefit)	0.99	%	1.00	%	0.70	%
Permanent items	0.90	%	0.34	%	0.27	%
Tax credits	(1.08)	%	(0.82)	%	(0.96)	%
Excess tax benefits on stock-based compensation	(1.94)	%	(3.42)	%	—	%
Tax Cuts and Jobs Act of 2017	—	%	3.57	%	—	%
Other	0.19	%	—	%	0.23	%
	20.06	%	35.67	%	35.24	%

The effective tax rate decreased in 2018 compared to 2017 due to the change in the statutory rate with the Tax Cuts and Jobs Act Bill (the “Tax Act”), partially offset by the re-measurement of our deferred tax inventories in 2017 in relation with the reduction in the U.S. federal tax rate and the reduction in excess tax benefits on stock-based compensation. At December 31, 2017, the Company was able to reasonably estimate the effects of the Act and recorded provisional adjustments associated with the effects on existing deferred tax balances. At December 31, 2018, the Company has completed its analysis and determined that there is no change to the provisional amount related to the re-measurement of its deferred tax balance.

The Company recorded $737 thousand as increases to contributed capital from certain tax benefits for employee stock-based compensation for the year ended December 31, 2016. In 2018 and 2017, subsequent to the adoption of the ASU 2016-09, the Company recorded $0.8 and $1.4 million tax benefit for employee stock-based compensation was recorded to the tax expense, respectively.

The components of the deferred income tax assets and liabilities at December 31, 2018 and 2017, as presented in the consolidated balance sheets, are as follows (in thousands):


	2018		2017
DEFERRED TAX ASSETS
Stock-based compensation	$	2,018	$	1,434
Compensation and benefits		466		555
Bad debt reserves		1		58
Accrued expenses		679		512
Fixed assets and depreciation		1,048		896
Base stock		4		11
State taxes		—		(31)
NOLs & credit carry-forwards		1,761		2,219
Deferred income tax asset	$	5,977	$	5,654
DEFERRED TAX LIABILITIES
Intangibles and amortization	$	(600)	$	(855)
Prepaid expenses		(1,067)		(890)
Real estate taxes		(180)		(191)
Other reserves		(5)		(14)
Federal deduction on deferred state taxes		(98)		(160)
Deferred income tax liability	$	(1,950)	$	(2,110)
NET DEFERRED INCOME TAX ASSET	$	4,027	$	3,544

As of December 31, 2018, the Company had $3.6 million of federal net operating loss (“NOL”) carryforwards, general business credit (“GBC”) carryforwards of $0.3 million and $17.2 million of state NOL carryforwards, acquired as part of the Monarch Casino Black Hawk acquisition. The federal NOL carryforwards expire in 2022 through 2032. The federal GBC carryforwards expire in 2023 through 2032. The state NOL carryforwards expire in 2022 through 2032.

The acquired federal and state NOL and federal GBC carryforwards are subject to Internal Revenue Code change of ownership limitations. Accordingly, future utilization of the carryforwards is subject to an annual base limitation of $1.25 million that can be applied against future taxable income.

The Company acquired NOLs of Monarch Black Hawk generated in tax years 2000 through 2012. The statute of limitation for assessment for these NOL years is determined by reference to the year the NOL is used to reduce taxable income. Consequently, the separate returns that included Monarch Black Hawk remain subject to examination by the Internal Revenue Service (the “IRS”). The Company’s income tax returns from 2014 forward are subject to examination by the IRS.

Accounting standards require that tax positions be assessed for recognition using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts. The Company’s policy regarding interest and penalties associated with uncertain tax positions is to classify such amounts as income tax expense.

No uncertain tax positions were recorded as of December 31, 2018, 2017 and 2016. No change in uncertain tax positions is anticipated over the next twelve months.

No interest expense or penalties for uncertain tax positions were recorded for years ended December 31, 2018, 2017 and 2016.