Note 8 - Income Taxes

Income taxes are estimated for each of the jurisdictions in which Veeco operates. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carry forwards. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. Realization of net deferred tax assets is dependent on future taxable income.

At the end of each interim reporting period, the effective tax rate is aligned to expectations for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent periods. Income (loss) before income taxes and income tax expense for the three months ended March 31, 2016 and 2015 were as follows:

	Three months ended March 31,
	2016			2015
	(in thousands)
Income (loss) before income taxes	$	(15,005	)	$	(15,664	)
Income tax expense	$	528		$	3,446

For the three months ended March 31, 2016, the $0.5 million net expense for income taxes included $0.4 million relating to Veeco’s domestic operations and $0.1 million relating to Veeco’s foreign operations. For the three months ended March 31, 2015, the $3.4 million net expense for income taxes included $2.0 million relating to Veeco’s domestic operations and $1.4 million relating to Veeco’s foreign operations. Although there was a domestic pre-tax loss for the three months ended March 31, 2016 and 2015, Veeco did not provide a current tax benefit on domestic pre-tax losses as the amounts are not realizable on a more-likely-than-not basis. The domestic tax expense for the three months ended March 31, 2015 is primarily related to withholding taxes and is also related to U.S. tax amortization expense of indefinite-lived intangible assets that is not available to offset existing deferred tax assets. The domestic tax expense for the three months ended March 31, 2016 is primarily related to the tax amortization that is not available to offset existing deferred tax assets.