NOTE 8. Income Taxes

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


	Years Ended December 31,
	2012			2011			2010
U.S. federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		2.9			3.0			2.5
Nondeductible expenses		0.5			0.6			1.1
Provision for valuation allowance		—			(0.3	)		—
State law change		0.3			(0.2	)		(0.3	)
Other		0.2			0.2			(0.3	)

Net effective rate		38.9	%		38.3	%		38.0	%

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,
	2012			2011			2010
Current
Federal	$	30,375		$	14,356		$	14,959
State and local		4,331			3,230			2,303
Foreign		47			32			47

		34,753			17,618			17,309

Deferred
Federal		7,865			18,146			9,411
State and local		693			365			(85	)
Foreign		(7	)		(10	)		—

		8,551			18,501			9,326

Total provision	$	43,304		$	36,119		$	26,635

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


	December 31,
	2012			2011
Reserve for uncollectible accounts receivable	$	2,182		$	1,379
Accrued compensation		7,602			6,342
Other reserves		2,517			3,154

Current deferred tax assets		12,301			10,875
Accrued compensation		5,411			4,670
Other reserves		514			966
Operating loss carryforwards		756			581
Less valuation allowance		(122	)		(108	)

Non-current deferred tax assets		6,559			6,109

Total deferred tax assets	$	18,860		$	16,984

Prepaids	$	(2,404	)	$	(1,939	)
Other receivables		(4,932	)		(4,098	)

Current deferred tax liabilities		(7,336	)		(6,037	)
Property and equipment		(30,961	)		(27,457	)
Goodwill		(76,029	)		(70,416	)

Non-current deferred tax liabilities		(106,990	)		(97,873	)

Total deferred tax liabilities	$	(114,326	)	$	(103,910	)

Our state tax net operating losses of $0.8 million expire between December 31, 2014 and December 31, 2032. Management believes it is more likely than not that the deferred tax assets will be realized with the exception of $0.1 million related to state tax net operating losses for which a valuation allowance has been established.

As of both December 31, 2012 and 2011, the amount of unrecognized tax benefits was $0.8 million of which $0.5 million would decrease our income tax provision, if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


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
Additions for tax positions taken in prior years		27

Balance at December 31, 2012	$	783

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. Examinations of various tax years by Maryland remain open. Although no other significant examinations are currently in effect, tax years 2009 through 2011 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.

It is reasonably possible that events could occur during the next twelve months which would change the amount of our unrecognized tax benefits. Our reserve could move up or down depending on the outcome of a state income tax audit and developments with some noteworthy lawsuits that have been initiated by unrelated taxpayers against state revenue departments. We estimate it is reasonably possible that our reserve could decrease by $0.3 million or increase up to $0.4 million depending upon the outcome of these events.

We recognize interest expense and penalties related to income tax liabilities in our provision for income taxes. In our 2012 provision for income taxes we recognized approximately three thousand dollars of both net interest expense related to income tax liabilities and income tax penalties.