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TAXES | 12 Months Ended
--- | ---
Dec. 31, 2013
TAXES |
TAXES | NOTE 7. TAXES Income Taxes The Company’s income tax provision (benefit) consists of the following:
|  | Years ended December 31, |
|  | 2013 |  | 2012 |  | 2011 |
Federal |  | $ | 9,640,020 |  | $ | 4,611,978 |  | $ | 4,683,711 |
State |  | 1,375,825 |  | 196,073 |  | — |
Current tax provision |  | 11,015,845 |  | 4,808,051 |  | 4,683,711 |
Federal |  | 107,917 |  | 208,812 |  | (1,503,638 | )
State |  | (489,717 | ) | 31,490 |  | — |
Deferred tax expense (benefit) |  | (381,800 | ) | 240,302 |  | (1,503,638 | )
Total tax provision |  | $ | 10,634,045 |  | $ | 5,048,353 |  | $ | 3,180,073 |
The income tax provision differs from that computed at the federal statutory rate as follows:
|  | Years ended December 31, |
|  | 2013 |  | 2012 |  | 2011 |
Federal tax at the statutory rate |  | 35.00 | % | 35.00 | % | 35.00 | %
State tax (net of federal benefit) |  | 1.33 | % | 0.98 | % | — |
Permanent items |  | 0.45 | % | 3.03 | % | 0.96 | %
Tax credits |  | (0.77 | )% | (1.44 | )% | (2.24 | )%
Adjustment to base jackpot liability |  | — |  | — |  | 2.09 | %
Other |  | 1.18 | % | (1.41 | )% | 0.10 | %
|  | 37.19 | % | 36.16 | % | 35.91 | %
The Company recorded $413,238, $915, and $0 as an increase to contributed capital from certain tax benefits for employee stock-based compensation for the years ended December 31, 2013, 2012 and 2011, respectively. The components of the deferred income tax assets and liabilities at December 31, 2013 and 2012, as presented in the consolidated balance sheets, are as follows:
|  | 2013 |  | 2012 |
DEFERRED TAX ASSETS |  |  |  |  |
Stock-based compensation |  | $ | 4,621,386 |  | $ | 4,595,100 |
Compensation and benefits |  | 759,519 |  | 700,194 |
Bad debt reserves |  | 133,707 |  | 255,053 |
Accrued expenses |  | 1,127,100 |  | 1,372,645 |
Fixed assets and depreciation |  | — |  | 50,428 |
Base stock |  | 235 |  | 787 |
NOLs & credit carry-forwards |  | 4,103,032 |  | 5,207,805 |
Deferred income tax asset |  | $ | 10,744,979 |  | $ | 12,182,012 |
DEFERRED TAX LIABILITIES |  |  |  |  |
Fixed assets and depreciation |  | $ | (105,714 | ) | $ | — |
Intangibles and amortization |  | (3,069,907 | ) | (4,044,119 | )
Prepaid expenses |  | (906,944 | ) | (922,736 | )
Real estate taxes |  | (285,497 | ) | (285,038 | )
Federal deduction on deferred state taxes |  | (118,756 | ) | (290,158 | )
Deferred income tax liability |  | $ | (4,486,818 | ) | $ | (5,542,051 | )
NET DEFERRED INCOME TAX ASSET |  | $ | 6,258,161 |  | $ | 6,639,961 |
As of December 31, 2013 the Company had $9,883,701 of federal net operating loss (“NOL”) carryforwards, general business credit (“GBC”) carryforwards of $370,073 and $26,479,345 of state NOL carryforwards, acquired as part of the Monarch Black Hawk (formerly Rivera Black Hawk) acquisition. The federal NOL carryforwards expire in 2020 through 2031. The federal GBC carryforwards expire in 2022 through 2031. The state NOL carryforwards expire in 2022 through 2032. The acquired federal and state NOL and federal GBC carryforwards are subject to Internal Revenue Code change of ownership limitations. Accordingly, future utilization of the carryforwards is subject to an annual base limitation of $1,250,000 that can be applied against future taxable income. Tax years 2009 forward are subject to examination by the Internal Revenue Service (the “IRS”). During the third quarter of 2012, the Company settled an IRS examination of its 2006 through 2008 income tax returns, paying $1.1 million. Accounting standards require that tax positions be assessed for recognition using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts. The Company’s policy regarding interest and penalties associated with uncertain tax positions is to classify such amounts as income tax expense. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | 2013 |  | 2012 |  | 2011 |
Balance — Beginning of year |  | $ | — |  | $ | 1,501,206 |  | $ | 1,501,206 |
Additions based on tax positions of the current year |  | — |  | — |  | — |
Additions based on tax positions of prior years |  | — |  | — |  | — |
Reductions for settlements |  | — |  | (1,501,206 | ) | — |
Decreases due to lapses in statutes of limitations |  | — |  | — |  | — |
Balance — End of year |  | $ | — |  | $ | — |  | $ | 1,501,206 |
As of December 31, 2011, the Company recorded a liability related to uncertain tax positions of $1,501,206. With the conclusion of the IRS examination of the Company’s 2006 through 2008 income tax returns, this liability was eliminated as of December 31, 2012. No uncertain tax positions were recorded as of December 31, 2013. No change in uncertain tax positions is anticipated over the next twelve months. The Company accrued interest related to unrecognized tax benefits of $335,659 as of December 31, 2011 of which $165,871 related to 2011. When the IRS examination was completed, over-accrued interest of $133,348 was reversed, resulting in tax benefit of $86,676 in 2012. No interest or expense for uncertain tax positions was recorded in 2013. Sales and Use Tax on Complimentary Meals On March 27, 2008, the Nevada Supreme Court issued a decision in Sparks Nugget, Inc. vs. The State of Nevada Department of Taxation (the “Department”), holding that food purchased for subsequent use in the provision of complimentary and/or employee meals were exempt from use tax. As a result of this decision, refund claims were filed for use taxes paid over the period April 1997 through March 2000 and the period February 2005 through June 2008, on food purchased for subsequent use in complimentary and employee meals at our Nevada casino property. We requested refunds totaling approximately $1.6 million, excluding interest (“the Refunds”). We have not recognized any of these refund amounts. In February 2012, the Department issued a policy directive, requesting that affected taxpayers begin collecting and remitting sales tax on complimentary meals and employee meals effective February 2012 and on June 25, 2012, the Nevada Tax Commission adopted regulations providing for a similar requirement. Subject to these regulations we accrued $0.6 million through June 2013 related to this directive. The Department policy directive was challenged by several affected parties and in June 2013, the Nevada Tax Commission issued a ruling that complimentary and employee meals were no longer subject to sales taxation. Associated with the ruling, the Nevada hotel-casino industry, including the Company, agreed to forego and cause to be withdrawn certain pending use tax refund requests. Pursuant to that agreement, we withdrew our request for the $1.6 million Refunds. As a result of the ruling, we reversed the accumulated sales tax expense accrual totaling $0.6 million in the second quarter of 2013.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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