NOTE 7. TAXES

Income Taxes

The Company’s income tax provision (benefit) consists of the following (in thousands):


	Years ended December 31,
	2016		2015		2014
Federal	$	12,834	$	11,968	$	6,935
State		477		359		46
Current tax provision		13,311		12,327		6,981
Federal		99		(1,117)		637
State		(52)		7		(688)
Deferred tax (benefit) provision		47		(1,110)		(51)
Total tax provision	$	13,358	$	11,217	$	6,930

The income tax provision differs from that computed at the federal statutory rate as follows:


	Years ended December 31,
	2016		2015		2014
Federal tax at the statutory rate	35.00	%	35.00	%	35.00	%
State tax (net of federal benefit)	0.70	%	0.72	%	(1.84)	%
Permanent items	0.27	%	0.34	%	3.49	%
Tax credits	(0.96)	%	(0.73)	%	(1.03)	%
Other	0.23	%	(0.14)	%	(2.80)	%
	35.24	%	35.19	%	32.82	%

The effective tax rate increased in 2016 compared to 2015 due to the dilutive effects of the increase to pre-tax book income.

The Company recorded $737 thousand, $865 thousand and $386 thousand as increases to contributed capital from certain tax benefits for employee stock-based compensation for the years ended December 31, 2016, 2015 and 2014, respectively.

The components of the deferred income tax assets and liabilities at December 31, 2016 and 2015, as presented in the consolidated balance sheets, are as follows (in thousands):


	2016		2015
DEFERRED TAX ASSETS
Stock-based compensation	$	2,198	$	2,039
Compensation and benefits		1,113		1,033
Bad debt reserves		136		163
Accrued expenses		1,991		1,695
Fixed assets and depreciation		2,305		2,626
Base stock		6		10
State Taxes		144		133
NOLs & credit carry-forwards		3,295		3,831
Deferred income tax asset	$	11,188	$	11,530
DEFERRED TAX LIABILITIES
Intangibles and amortization	$	(1,811)	$	(2,235)
Prepaid expenses		(1,365)		(1,279)
Real estate taxes		(154)		(150)
Other Reserves		(138)		(95)
Federal deduction on deferred state taxes		(366)		(356)
Deferred income tax liability	$	(3,834)	$	(4,115)
NET DEFERRED INCOME TAX ASSET	$	7,354	$	7,415

As of December 31, 2016 the Company had $6.1 million of federal net operating loss (“NOL”) carryforwards, general business credit (“GBC”) carryforwards of $0.3 million and $19.7 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 2021 through 2031. The federal GBC carryforwards expire in 2023 through 2032. 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 2013 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, 2016, 2015 and 2014. 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, 2016, 2015 and 2014.