12. Income Taxes

Effective Income Tax Rate – Three Months Ended March 31, 2017 and March 31, 2016

The Company’s effective income tax rate for the three months ended March 31, 2017 of 53.6% resulted in income tax expense of $7.9 million. The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to a valuation allowance on foreign net operating losses, tax shortfalls associated with the vesting of stock-based compensation awards and state and local income taxes.

Effective January 1, 2017, US GAAP was amended with the intention to simplify the accounting for stock-based compensation. This includes the requirement to record the tax effects related to stock-based compensation within income tax expense, rather than additional paid-incapital, when applicable. Therefore, tax shortfalls (and tax windfalls) associated with the vesting of stock-based compensation awards are now included within income tax expense. This new guidance resulted in the recognition of $1.0 million of income tax expense associated with tax shortfalls recognized upon vesting of stock-based compensation awards during the quarter.

The Company’s effective income tax rate for the three months ended March 31, 2016 of 44.3% resulted in income tax expense of $9,600. The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to state and local income taxes, the acquisition payment expense (which is non-deductible) and a valuation allowance on foreign net operating losses.

Net Operating Losses – U.S.

The Company’s pre-tax federal net operating losses for tax purposes (“NOLs”) at March 31, 2017 was $3,671 which expire in 2024. The net operating loss carryforwards have been reduced by the impact of annual limitations described in the Internal Revenue Code Section 382 that arose as a result of an ownership change.

Net Operating Losses – International

The Company’s European and Canadian subsidiaries generated NOLs outside the U.S. These tax effected NOLs were $2.4 million at March 31, 2017. The Company established a full valuation allowance related to these NOLs as it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.

Deferred Tax Assets

A summary of the components of the Company’s deferred tax asset at March 31, 2017 is as follows:


	March 31, 2017			December 31, 2016
Deferred tax assets:
NOLs – Foreign	$	2,414		$	4,551
Stock-based compensation		2,353			5,382
Deferred rent liability		2,005			2,024
NOLs – U.S.		1,410			1,611
Accrued expenses		1,207			4,552
Unrealized losses		163			101
Other		262			227

Deferred tax assets		9,814			18,448

Deferred tax liabilities:
Fixed assets		2,405			2,405
Incentive compensation		1,023			1,365
Goodwill and intangible assets		376			301

Deferred tax liabilities		3,804			4,071

Total deferred tax assets less deferred tax liabilities		6,010			14,377
Less: valuation allowance		(2,414	)		(4,551	)

Deferred tax assets, net	$	3,596		$	9,826