3. Income Taxes

The components of the provision for income taxes are as follows:



	Years ended December 31
	2013		2012		2011
Current tax:
U.S. Federal	$	165,731	$	166,386	$	100,983
U.S. State		39,136		31,231		21,848
Foreign		63		125		(6)
		204,930		197,742		122,825
Deferred tax:
U.S. Federal		5,238		(16,024)		12,080
U.S. State		(3,105)		(2,013)		(50)
Foreign		(1,330)		(1,578)		(711)
		803		(19,615)		11,319
Valuation allowance		1,300		1,558		616
Provision for income taxes	$	207,033	$	179,685	$	134,760

Actual taxes paid for each tax period were less than the current tax expense due to the excess tax benefit on stock-based compensation of $38,379, $73,210, and $38,786 during the years ended December 31 2013, 2012, and 2011, respectively.

The effective tax rate differs from the statutory tax rates as follows:



	Years ended December 31
	2013		2012		2011
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
State income tax, net of related federal income tax benefit	4.2		4.1		4.1
Federal credits	(0.5)		-		(0.8)
Valuation allowance	0.4		0.3		0.1
Prior period adjustments	(0.4)		(0.1)		0.1
Effective income tax rates	38.7	%	39.3	%	38.5	%

In January 2013, the United States Congress authorized, and the President signed into law, certain federal tax credits that were reflected in the Company’s U.S. tax return for 2012; however, since this law was enacted in 2013, the financial statement benefit of such credits were reflected in 2013. The lack of availability of such credits caused the 2012 effective tax rate to be approximately 0.7% higher than it would have been had the credits been approved in 2012. Recognizing the 2012 credits during 2013 benefited the 2013 rate by 0.6%.

Deferred U.S. income taxes have not been recorded for temporary differences related to investments in certain foreign subsidiaries. These temporary differences consisted primarily of undistributed earnings considered permanently invested in operations outside the U.S. Determination of the deferred income tax liability on these unremitted earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.

Deferred income tax liabilities are taxes the Company expects to pay in future periods. Similarly, deferred income tax assets are recorded for expected reductions in taxes payable in future periods. Deferred income taxes arise because of the differences in the book and tax bases of certain assets and liabilities. Deferred income tax liabilities and assets consist of the following:



	December 31
	2013		2012
Long-term deferred income tax liability:
Leasehold improvements, property and equipment	$	156,746	$	136,040
Goodwill and other assets		1,346		1,166
Other		1,591		-
Total long-term deferred income tax liability		159,683		137,206
Long-term deferred income tax asset:
Deferred rent		47,127		41,041
Gift card liability		876		480
Capitalized transaction costs		506		505
Stock-based compensation and other employee benefits		53,622		46,515
Foreign net operating loss carry-forwards		5,598		2,992
State credits		1,300		-
Other		-		72
Valuation allowance		(4,780)		(3,346)
Total long-term deferred income tax asset		104,249		88,259
Net long-term deferred income tax liability		55,434		48,947
Current deferred income tax liability:
Prepaid assets and other		2,970		2,086
Total current deferred income tax liability		2,970		2,086
Current deferred income tax asset:
Allowances, reserves and other		11,973		10,433
Other employee benefits		4,267		573
Valuation allowance		(58)		(58)
Total current deferred income tax asset		16,182		10,948
Net current deferred income tax asset		13,212		8,862
Total deferred income tax liability	$	42,222	$	40,085

As of December 31, 2013 and 2012, the Company had no unrecognized tax benefits. There was no change in the amount of unrecognized tax benefits as a result of tax positions taken during the year or in prior periods or due to settlements with taxing authorities or lapses of applicable statutes of limitations. The Company is open to federal and state tax audits until the applicable statutes of limitations expire. Tax audits by their very nature are often complex and can require several years to complete. The Company is no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2010. For the majority of states where the Company has a significant presence, it is no longer subject to tax examinations by tax authorities for tax years before 2009. Some of the Company’s foreign net operating losses begin expiring in 2015.