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TAXES | 12 Months Ended
--- | ---
Dec. 31, 2015
TAXES. |
TAXES | NOTE 7. TAXES Income Taxes The Company’s income tax provision (benefit) consists of the following (in thousands):
|  | Years ended December 31, |
|  | 2015 |  | 2014 |  | 2013 |
Federal |  | $ | 11,968 |  | $ | 6,935 |  | $ | 9,856 |
State |  | 359 |  | 46 |  | 396 |
Current tax provision |  | 12,327 |  | 6,981 |  | 10,252 |
Federal |  | (1,117 | ) | 637 |  | (108 | )
State |  | 7 |  | (688 | ) | 490 |
Deferred tax (benefit) provision |  | (1,110 | ) | (51 | ) | 382 |
Total tax provision |  | $ | 11,217 |  | $ | 6,930 |  | $ | 10,634 |
The income tax provision differs from that computed at the federal statutory rate as follows:
|  | Years ended December 31, |
|  | 2015 |  | 2014 |  | 2013 |
Federal tax at the statutory rate |  | 35.00 | % | 35.00 | % | 35.00 | %
State tax (net of federal benefit) |  | 0.72 | % | (1.84 | )% | 1.33 | %
Permanent items |  | 0.34 | % | 3.49 | % | 0.45 | %
Tax credits |  | (0.73 | )% | (1.03 | )% | (0.77 | )%
Other |  | (0.14 | )% | (2.80 | )% | 1.18 | %
|  | 35.19 | % | 32.82 | % | 37.19 | %
The effective tax rate increased in 2015 compared to 2014 because of the effect of tax planning strategies implemented in 2014. Tax planning strategies implemented during 2014 resulted in an decrease of the effective tax rate when compared to 2013. The Company recorded $865 thousand, $386 thousand and $413 thousand as increases to contributed capital from certain tax benefits for employee stock-based compensation for the years ended December 31, 2015, 2014 and 2013, respectively. The components of the deferred income tax assets and liabilities at December 31, 2015 and 2014, as presented in the consolidated balance sheets, are as follows (in thousands):
|  | 2015 |  | 2014 |
DEFERRED TAX ASSETS |  |  |  |  |
Stock-based compensation |  | $ | 2,039 |  | $ | 2,156 |
Compensation and benefits |  | 1,033 |  | 744 |
Bad debt reserves |  | 163 |  | 114 |
Accrued expenses |  | 1,695 |  | 1,663 |
Fixed assets and depreciation |  | 2,626 |  | 1,615 |
Base stock |  | 10 |  | 1 |
State Taxes |  | 133 |  | — |
NOLs & credit carry-forwards |  | 3,831 |  | 4,322 |
Deferred income tax asset |  | $ | 11,530 |  | $ | 10,615 |
DEFERRED TAX LIABILITIES |  |  |  |  |
Intangibles and amortization |  | $ | (2,235 | ) | $ | (2,649 | )
Prepaid expenses |  | (1,279 | ) | (984 | )
Real estate taxes |  | (150 | ) | (290 | )
Other Reserves |  | (95 | ) | (24 | )
Federal deduction on deferred state taxes |  | (356 | ) | (360 | )
Deferred income tax liability |  | $ | (4,115 | ) | $ | (4,307 | )
NET DEFERRED INCOME TAX ASSET |  | $ | 7,415 |  | $ | 6,308 |
The Company early adopted ASU No. 2015-17, at December 31, 2015 which simplifies presentation of the deferred tax assets and liabilities by allowing all such balances to be treated as noncurrent. The Company reclassified $2.8 million of current net deferred tax asset as noncurrent. The 2014 deferred tax assets have not been reclassified to conform to this presentation. As of December 31, 2015 the Company had $7.4 million of federal net operating loss (“NOL”) carryforwards, general business credit (“GBC”) carryforwards of $0.3 million and $19.5 million of state NOL carryforwards, acquired as part of the Monarch Casino 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 $1.25 million that can be applied against future taxable income. The Company acquired NOLs of Monarch Black Hawk generated in tax years 2000 through 2012. The statute of limitation for assessment for these NOL years is determined by reference to the year the NOL is used to reduce taxable income. Consequently, the separate returns that included Monarch Black Hawk remain subject to examination by the Internal Revenue Service (the “IRS”). The Company’s income tax returns from 2012 forward are subject to examination by the IRS. 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. No uncertain tax positions were recorded as of December 31, 2015, 2014 and 2013. No change in uncertain tax positions is anticipated over the next twelve months. No interest expense or penalties for uncertain tax positions were recorded for years ended December 31, 2015, 2014 and 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 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 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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