NOTE 7. Income Taxes

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


	Years Ended December 31,
	2013			2012			2011
U.S. federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		3.2			2.9			3.0
State incentives		(0.6	)		—			—
State law changes		0.1			0.3			(0.2	)
Nondeductible expenses		0.8			0.5			0.6
Provision for valuation allowance		—			—			(0.3	)
Other		0.1			0.2			0.2

Net effective rate		38.6	%		38.9	%		38.3	%

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


	Years Ended December 31,
	2013			2012			2011
Current
Federal	$	22,880		$	30,375		$	14,356
State and local		3,817			4,331			3,230
Foreign		205			47			32

		26,902			34,753			17,618

Deferred
Federal		15,920			7,865			18,146
State and local		627			693			365
Foreign		(4	)		(7	)		(10	)

		16,543			8,551			18,501

Total provision	$	43,445		$	43,304		$	36,119

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


	December 31,
	2013			2012
Reserve for uncollectible accounts receivable	$	2,398		$	2,182
Accrued compensation		8,175			7,602
Other reserves		2,356			2,517

Current deferred tax assets		12,929			12,301
Accrued compensation		5,919			5,411
Other reserves		545			514
Operating loss carryforwards		883			756
Less valuation allowance		(108	)		(122	)

Non-current deferred tax assets		7,239			6,559

Total deferred tax assets	$	20,168		$	18,860

Prepaids	$	(2,473	)	$	(2,404	)
Other receivables		(4,630	)		(4,932	)

Current deferred tax liabilities		(7,103	)		(7,336	)
Property and equipment		(45,185	)		(30,961	)
Goodwill		(79,889	)		(76,029	)

Non-current deferred tax liabilities		(125,074	)		(106,990	)

Total deferred tax liabilities	$	(132,177	)	$	(114,326	)

Our state tax net operating losses of $0.9 million expire between December 31, 2014 and December 31, 2033. 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 December 31, 2013 and December 31, 2012, the amount of unrecognized tax benefits was $0.5 million and $0.8 million, respectively. Of these amounts, our income tax provision would decrease $0.5 million and $0.8 million respectively, if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


Balance at January 1, 2012	$	756
Additions for tax positions taken in prior years		27

Balance at December 31, 2012	$	783
Additions for tax positions taken in prior years		17
Reductions for tax positions taken in prior years		(184	)
Reductions as a result of a lapse of the applicable statute of limitations		(157	)

Balance at December 31, 2013	$	459

We are subject to income taxation in the U.S., numerous state jurisdictions, Mexico and Canada (beginning in late 2013). Because income tax return formats vary among the states, we file both unitary and separate company state income tax returns.

In 2013, the IRS selected our 2011 and 2012 tax years for audit. Also in 2013, our 2009 through 2010 tax years and 2010 through 2012 tax years were selected for audit by Illinois and Massachusetts, respectively. In 2013, Texas audited refund claims that we submitted for tax years 2007 through 2009. We expect to receive approximately $0.3 million after our Texas claims are processed. Although no other significant examinations are currently in effect, tax years 2010 through 2012 generally remain open to examination by the major tax jurisdictions to which we are subject.

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 pending developments with lawsuits that have been initiated by unrelated taxpayers against several state revenue departments. We estimate it is reasonably possible that our reserve could either increase or decrease by $0.2 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 2013 provision for income taxes we recognized approximately one thousand dollars of both net interest expense related to income tax liabilities and income tax penalties.

On September 13, 2013, the Internal Revenue Service issued final regulations which affect all taxpayers that repair, acquire, or improve tangible property. These rules will be effective for our taxable year ending December 31, 2014. We do not anticipate that these regulations will have a material impact on our financial position or results of operations.