Income Taxes

Income Tax Provision

Income before income taxes includes the following components:



	Year Ended December 31
	2015		2014		2013
	(thousands)
Domestic	$	79,414	$	122,727	$	82,529
Foreign	1,268		578		(4,381		)
Income before income taxes	$	80,682	$	123,305	$	78,148

The income tax provision (benefit) shown in the Consolidated Statements of Operations includes the following:



	Year Ended December 31
	2015			2014		2013
	(thousands)
Current income tax provision (benefit)
Federal	$	(2,938	)	$	27,568	$	17,618
State	555			5,023		3,172
Foreign	—			—		22
Total current	(2,383		)	32,591		20,812

Deferred income tax provision (benefit)
Federal	27,011			9,740		(54,611		)
State	3,872			965		(4,989		)
Foreign	—			—		—
Total deferred	30,883			10,705		(59,600		)
Income tax provision (benefit)	$	28,500		$	43,296	$	(38,788	)

The effective tax rate varies from the U.S. Federal statutory income tax rate principally due to the following:



	Year Ended December 31
	2015			2014			2013
	(thousands, except percentages)
Income before income taxes	$	80,682		$	123,305		$	78,148
Statutory U.S. income tax rate	35.0		%	35.0		%	35.0		%

Statutory tax provision	$	28,239		$	43,157		$	27,352
State taxes	3,006			4,097			2,545
Domestic production activities deduction	(299		)	(2,031		)	(1,326		)
Other	(2,446		)	(1,927		)	1,307
Total	$	28,500		$	43,296		$	29,878

Effective income tax rate excluding discrete item	35.3		%	35.1		%	38.2		%

Recognition of beginning deferred tax balances	$	—		$	—		$	(68,666	)	(a)

Income tax provision (benefit) with discrete item	$	28,500		$	43,296		$	(38,788	)

Effective income tax rate with discrete item	35.3		%	35.1		%	(49.6		)%

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(a)

On February 4, 2013, we converted from a limited liability company to a corporation. In addition, we elected to be treated as a corporation for federal and state income tax purposes effective as of January 1, 2013. Therefore, we have been subject to federal and state income tax expense since January 1, 2013. For tax purposes, our conversion from a limited liability company to a corporation was deemed a nontaxable transfer of Boise Cascade, L.L.C., assets and liabilities to Boise Cascade Company. As a result of our conversion to a corporation in February 2013, we recorded net deferred tax assets of $68.7 million, the effect of which was recorded as an income tax benefit in our Consolidated Statement of Operations for the year ended December 31, 2013.

During the years ended December 31, 2015, 2014, and 2013, cash paid for taxes, net of refunds received, was $0.7 million, $40.3 million, and $22.7 million, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The components of our net deferred tax assets and liabilities at December 31, 2015 and 2014, are summarized as follows:



	December 31, 2015			December 31, 2014
	(thousands)
Deferred tax assets
Employee benefits (a)	$	52,840		$	81,414
Inventories	6,618			6,733
Foreign net operating loss carryforward and foreign other (b)	9,884			15,839
Other	6,257			4,269
Gross deferred tax assets	75,599			108,255
Valuation allowance (b)	(9,884		)	(15,839		)
Net deferred tax assets	$	65,715		$	92,416

Deferred tax liabilities
Property and equipment	$	58,692		$	50,199
Intangible assets and other	5,264			4,531
Other	851			691
Deferred tax liabilities	$	64,807		$	55,421

Total deferred tax assets, net	$	908		$	36,995

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(a)	The decrease primarily relates to the tax effect of changes in recorded pension liabilities. See Note 7, Retirement and Benefit Plans, for more information.

(b)

We have an investment in foreign subsidiaries, which at December 31, 2015 and 2014, had $9.9 million and $15.8 million, respectively, of deferred tax assets. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. The foreign deferred tax assets results primarily from net operating losses and were fully offset by a valuation allowance. The net operating losses will expire beginning in 2026 through 2033.

Income Tax Uncertainties

The following table summarizes the changes related to our gross unrecognized tax benefits excluding interest and penalties:



	2015			2014
	(thousands)
Balance as of January 1	$	309		$	—
Increases related to prior years' tax positions	431			172
Increases related to current year tax positions	145			137
Decreases related to prior years' tax positions	(7		)	—
Balance as of December 31	$	878		$	309

As of December 31, 2015 and 2014, we had $0.9 million and $0.3 million, respectively, of unrecognized tax benefits recorded on our Consolidated Balance Sheets, excluding interest and penalties. Of the total unrecognized tax benefits recorded, $0.7 million and $0.3 million (net of the federal benefit for state taxes), respectively, would impact the effective tax rate if recognized. We had no unrecognized tax benefits recorded as of December 31, 2013.

We recognize interest and penalties related to uncertain tax positions as income tax expense in our Consolidated Statements of Operations. For the years ended December 31, 2015, 2014, and 2013, we recognized an insignificant amount of interest and penalties related to taxes. We recognize tax liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available or as new uncertainties occur. We do not expect the unrecognized tax benefits to change significantly over the next twelve months.

We file federal income tax returns in the U.S. and Canada as well as various state and local income tax returns. Tax years 2012 to present remain open to examination in the U.S. and tax years 2011 to present remain open to examination in Canada and various states. As discussed above, prior to January 1, 2013, we were a limited liability company. Therefore, with limited exceptions, tax years prior to 2013 are the responsibility of the members of BC Holdings and not Boise Cascade.