14.INCOME TAXES

The domestic and foreign components of the Company’s income (loss) before provision for income taxes are as follows:

	Year Ended December 31,
	2014		2013			2012
Domestic*	$	711,917	$	596,899		$	568,225
Foreign*	33,871		(33,005		)	(19,071		)
Income before provision for income taxes	$	745,788	$	563,894		$	549,154

*After intercompany royalties, management fees and interest charges from the Company’s domestic to foreign entities of $34.9 million, $25.9 million and $22.9 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Components of the provision for income taxes are as follows:

	Year Ended December 31,
	2014			2013			2012
Current:
Federal	$	228,348		$	191,596		$	177,372
State	36,633			36,662			30,268
Foreign	7,467			4,052			3,951
	272,448			232,310			211,591

Deferred:
Federal	(8,473		)	(7,441		)	(743		)
State	(442		)	(1,443		)	(483		)
Foreign	3,476			(9,694		)	(7,373		)
	(5,439		)	(18,578		)	(8,599		)

Valuation allowance	(4,406		)	11,501			6,142
	$	262,603		$	225,233		$	209,134

The differences in the total provision for income taxes that would result from applying the 35% federal statutory rate to income before provision for income taxes and the reported provision for income taxes are as follows:

	Year Ended December 31,
	2014			2013			2012
U.S. Federal tax expense at statutory rates	$	261,025		$	197,363		$	192,204
State income taxes, net of federal tax benefit	23,859			22,640			20,252
Permanent differences	4,816			936			5,968
Domestic production deduction	(20,607		)	(16,039		)	(15,469		)
Other	(1,267		)	266			(388		)
Foreign rate differential	(817		)	8,566			425
Valuation allowance	(4,406		)	11,501			6,142
	$	262,603		$	225,233		$	209,134

Major components of the Company’s deferred tax assets (liabilities) at December 31 are as follows:

	2014			2013
Deferred Tax Assets:
Reserve for sales returns	$	289		$	583
Reserve for doubtful accounts	36			62
Reserve for inventory obsolescence	3,030			2,060
Reserve for marketing development fund	9,118			9,470
Capitalization of inventory costs	2,527			1,949
State franchise tax	8,160			6,043
Accrued compensation	-			867
Accrued other liabilities	3,503			4,871
Deferred revenue	47,319			50,813
Stock-based compensation	25,268			21,963
Securities impairment	288			273
Foreign net operating loss carryforward	17,256			19,346
Prepaid supplies	4,195			4,639
Gain on intercompany transfer	8,347			-
Total gross deferred tax assets	$	129,336		$	122,939

Deferred Tax Liabilities:
Amortization of trademarks	$	(11,923	)	$	(10,393	)
Unrealized gain on available-for-sale investments	-			-
Other deferred tax liabilities	(327		)	(94		)
Depreciation	(5,022		)	(5,828		)
Total gross deferred tax liabilities	(17,272		)	(16,315		)

Valuation Allowance	(17,683		)	(22,089		)

Net deferred tax assets	$	94,381		$	84,535

During the years ended December 31, 2014, 2013 and 2012, the Company established full valuation allowances against certain deferred tax assets, resulting from cumulative net operating losses incurred by certain foreign subsidiaries of the Company. The effect of the valuation allowances and the subsequent related impact on the Company’s overall tax rate was to (decrease) increase the Company’s provision for income taxes by ($4.4) million, $10.8 million and $6.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. At December 31, 2014, the Company had net operating loss carryforwards of approximately $78.5 million. Of this amount, $65.0 million may be carried forward indefinitely. The remaining $13.5 million will begin to expire in 2017.

The following is a rollforward of the Company’s total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31, 2014, 2013 and 2012:

	Gross Unrealized Tax Benefits
Balance at January 1, 2012	$	1,910
Additions for tax positions related to the current year	-
Additions for tax positions related to the prior year	520
Decreases for tax positions related to prior years	(1,504)
Balance at December 31, 2012	$	926
Additions for tax positions related to the current year	-
Additions for tax positions related to the prior year	9
Decreases for tax positions related to prior years	-
Balance at December 31, 2013	$	935
Additions for tax positions related to the current year	-
Additions for tax positions related to the prior year	-
Decreases for tax positions related to prior years	-
Balance at December 31, 2014	$	935

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s consolidated financial statements. As of December 31, 2014, the Company had accrued approximately $0.4 million in interest and penalties related to unrecognized tax benefits. If the Company were to prevail on all uncertain tax positions it would not have a significant impact on the Company’s effective tax rate.

It is expected that the amount of unrecognized tax benefit change within the next 12 months will not be significant.

The Company is subject to U.S. federal income tax as well as to income tax in multiple state and foreign jurisdictions.

On March 8, 2013, the Internal Revenue Service (“IRS”) began its examination of the Company’s U.S. federal income tax returns for the years ended December 31, 2010 and 2011. The Company is also in various stages of examination with certain states. The 2012 and 2013 U.S. federal income tax returns are subject to IRS examination. State income tax returns are subject to examination for the 2010 through 2013 tax years.