12. Income Taxes

Effective Income Tax Rate – Three and Six Months Ended June 30, 2017

The Company’s effective income tax rate for the three months ended June 30, 2017 of 45.5% resulted in income tax expense of $10,120. 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 and state and local income taxes.

The Company’s effective income tax rate for the six months ended June 30, 2017 of 48.8% resulted in income tax expense of $18,062. 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-in capital, 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 $59 and $1,098 of income tax expense associated with tax shortfalls recognized upon vesting of stock-based compensation awards for the three and six months ended June 30, 2017, respectively.

Effective Income Tax Rate – Three and Six Months Ended June 30, 2016

The Company’s effective income tax rate for the three and six months ended June 30, 2016 of 67.3% and 52.1%, respectively, resulted in income tax expense of $7,505 and $17,105, respectively. The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to the acquisition payment expense (which is non-deductible), a valuation allowance on foreign net operating losses and state and local income taxes.

Net Operating Losses – U.S.

The Company’s pre-tax federal net operating losses for tax purposes (“NOLs”) at June 30, 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 $2,821 at June 30, 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 is as follows:


	June 30, 2017			December 31, 2016
Deferred tax assets:
Accrued expenses	$	3,168		$	4,552
Stock-based compensation		3,085			5,382
NOLs – Foreign		2,821			4,551
Deferred rent liability		1,987			2,024
NOLs – U.S.		1,410			1,611
Unrealized losses, net		—			101
Other		387			227

Deferred tax assets		12,858			18,448

Deferred tax liabilities:
Fixed assets		2,405			2,405
Unrealized gains, net		2,473			—
Incentive compensation		682			1,365
Goodwill and intangible assets		451			301

Deferred tax liabilities		6,011			4,071

Total deferred tax assets less deferred tax liabilities		6,847			14,377
Less: valuation allowance		(2,821	)		(4,551	)

Deferred tax assets, net	$	4,026		$	9,826