Income Taxes

9 Months Ended

Sep. 30, 2017

The gross liability for unrecognized tax benefits at September 30, 2017 and December 31, 2016 was $16,038 and $17,287, respectively, exclusive of interest and penalties, of which $13,386 and $14,868 would affect the effective tax rate if the Company were to recognize the tax benefit.

The Company classifies interest and penalties on unrecognized tax benefits as income tax expense. As of September 30, 2017 and December 31, 2016, the combined amount of accrued interest and penalties related to tax positions taken on tax returns was $1,361 and $1,224, respectively.



	September 30, 2017		December 31, 2016
Gross liability for unrecognized tax benefits, exclusive of interest and penalties	$	16,038	$	17,287
Interest and penalties on unrecognized benefits	1,361		1,224
Total gross uncertain tax positions	$	17,399	$	18,511
Amount included in Current liabilities	$	2,648	$	3,866
Amount included in Other long-term liabilities	14,751		14,645
	$	17,399	$	18,511

The Company's effective income tax rate for the three and nine months ended September 30, 2017 and 2016 differs from the federal income tax statutory rate due to the following:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Statutory rate	35.0	%	35.0	%	35.0	%	35.0	%
State taxes, net of federal tax benefit	1.7		1.2		1.7		1.5
Foreign tax expense and tax rate differential	(1.0	)	(0.8	)	(1.0	)	(0.8	)
Tax benefit from stock option exercises	(4.5	)	—		(3.9	)	—
Expiration of the statute of limitations	(2.6	)	(0.8	)	(0.9	)	(0.3	)
Other, net	(0.9	)	(0.8	)	(0.7	)	(0.7	)
	27.7	%	33.8	%	30.2	%	34.7	%

The decrease in the tax rates for the three and nine months ended September 30, 2017 was primarily due to the adoption of ASU 2016-09. Under this standard, the tax effects of stock option exercises are treated as discrete items in the reporting period in which they occur. Therefore, the tax effect of stock option exercises is not spread over the entire year through the use of the annual effective tax rate, but instead is recorded entirely in the period in which the tax deduction arose. Accordingly, the Company recorded the income tax benefit as a discrete item in income for the three and nine months ended September 30, 2017. The Company's effective tax rate could fluctuate significantly on a quarterly basis due to the tax effects of stock-based compensation. The decrease in the tax rates for the three and nine months ended September 30, 2017 was also due to the expiring statute of limitations pertaining to various federal tax items.

The Company files income tax returns in the United States on a consolidated basis and in many U.S. state and foreign jurisdictions. The Company is subject to examination of income tax returns by the Internal Revenue Service (IRS) and other domestic and foreign tax authorities. The Company is no longer subject to U.S. federal income tax examination for years before 2014 and is no longer subject to state, local or foreign income tax examinations by authorities for years before 2010.

The Company estimates it will recognize $2,648 of gross unrecognized tax benefits. This amount is expected to be paid within one year or to be removed at the expiration of the statute of limitations and resolution of income tax audits and is netted against the current payable account. These unrecognized tax benefits are related to tax positions taken on certain federal, state, and foreign tax returns. However, the timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. While it is reasonably possible that some issues under examination could be resolved in the next twelve months, based upon the current facts and circumstances, the Company cannot reasonably estimate the timing of such resolution or the total range of potential changes as it relates to the current unrecognized tax benefits that are recorded as part of the Company’s financial statements.