NOTE 8. Income Taxes

The following is a reconciliation of our effective tax rate to the federal statutory tax rate:


	Years Ended December 31,
	2011			2010			2009
U.S. federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		3.0			2.5			2.6
Nondeductible expenses		0.6			1.1			0.5
Provision for valuation allowance		(0.3	)		—			0.4
State law change		(0.2	)		(0.3	)		0.4
Other		0.2			(0.3	)		(0.2	)

Net effective rate		38.3	%		38.0	%		38.7	%

We, and our subsidiaries, file both unitary and separate company state income tax returns.

The following is a summary of our provision for income taxes (in thousands):


	Years Ended December 31,
	2011			2010			2009
Current
Federal	$	14,356		$	14,959		$	14,700
State and local		3,230			2,303			1,619
Foreign		32			47			—

		17,618			17,309			16,319

Deferred
Federal		18,146			9,411			4,560
State and local		365			(85	)		741
Foreign		(10	)		—			—

		18,501			9,326			5,301

Total provision	$	36,119		$	26,635		$	21,620

The following is a summary of our deferred tax assets and liabilities (in thousands):


	December 31,
	2011			2010
Reserve for uncollectible accounts receivable	$	1,379		$	1,363
Accrued compensation		6,342			4,217
Other reserves		3,154			2,618

Current deferred tax assets		10,875			8,198

Accrued compensation		4,670			4,376
Other reserves		966			1,020
Operating loss carryforwards		581			415
Income tax basis in excess of financial basis of goodwill		—			150
Less valuation allowance		(108	)		(379	)

Non-current deferred tax assets		6,109			5,582

Total deferred tax assets	$	16,984		$	13,780

Prepaids	$	(1,939	)	$	(1,614	)
Other receivables		(4,098	)		(3,270	)

Current deferred tax liabilities		(6,037	)		(4,884	)

Property and equipment		(27,457	)		(12,332	)
Goodwill		(70,416	)		(64,989	)

Non-current deferred tax liabilities		(97,873	)		(77,321	)

Total deferred tax liabilities	$	(103,910	)	$	(82,205	)

Our state tax net operating losses of $581,000 expire between December 31, 2014 and December 31, 2031. Management believes it is more likely than not that the deferred tax assets will be realized with the exception of $108,000 related to state tax net operating losses for which a valuation allowance has been established. The valuation allowance for state tax net operating losses decreased from $379,000 as of December 31, 2010 to $108,000 as of December 31, 2011 due to a June 2011 Wisconsin tax law change which allows us to utilize tax net operating losses over a longer time period and on a consolidated basis.

As of December 31, 2011 and 2010, the amount of unrecognized tax benefits was $0.8 million and $0.7 million, of which $0.5 million and $0.4 million would decrease our income tax provision, respectively, if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


Balance at December 31, 2009	$	518
Additions based on tax positions related to the current year		239
Reductions as a result of a lapse of the applicable statute of limitations		(102	)

Balance at December 31, 2010	$	655
Additions for tax positions taken in prior years		200
Reductions as a result of a lapse of the applicable statute of limitations		(99	)

Balance at December 31, 2011	$	756

We are subject to income taxation in the U.S., numerous state jurisdictions and Mexico. Our 2008 tax year was the most recent year examined by the IRS. In 2011 the IRS closed their exam of 2008 with no changes and decided not to examine our 2009 tax year. Also in 2011, California and Illinois closed their examinations of our 2006 through 2007 tax years and 2007 through 2008 tax years, respectively. Both state examinations resulted in small refunds due to us. Examinations of various tax years by Maryland and Michigan remain open. Although no other significant examinations are currently in effect, tax years 2008 through 2010 generally remain open to examination by the major tax jurisdiction to which we are subject, with the exception of years closed by the examinations discussed above.

During the next twelve months, it is reasonably possible we will reduce unrecognized tax benefits by approximately $0.2 million as a result of audit settlements.

We recognize interest expense and penalties related to income tax liabilities in our provision for income taxes. In our 2011 provision for income taxes we recognized $10,365 of net interest income related to income tax liabilities and $1,248 of income tax penalties.