Income Taxes

In accordance with ASC Topic 740, "Income Taxes", income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax liabilities and assets, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change. Malibu Boats, Inc. is taxed as a C Corporation, which is subject to both federal and state taxation at a corporate level. Therefore, tax expense and deferred tax assets and liabilities reflect such status.

The components of provision for (benefit from) income taxes are as follows:



	Fiscal Year Ended June 30, 2014
Current tax expense:
Federal	$	44
State	376
Foreign	14
Total Current	434
Deferred tax benefit:
Federal	(2,066		)
State	(588		)
Foreign	—
Total Deferred	(2,654		)
Income tax benefit	$	(2,220	)

The income tax benefit differs from the amount computed by applying the federal statutory income tax rate to income from continuing operations before income taxes. The sources and tax effects of the differences are as follows:



	Fiscal Year Ended June 30, 2014
Federal tax provision at statutory rate	35.0	%
State income taxes, net of federal benefit	5.5
Permanent differences attributable to partnership investment	(9.9	)
Non-controlling interest	36.5
Other, net	(1.9	)
Total income tax expense on continuing operations	65.2	%

The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiary operated as a limited liability company which was not subject to federal income tax. Accordingly, the portion of the Company’s subsidiary earnings attributable to the non-controlling interest are subject to tax when reported as a component of the non-controlling interests’ taxable income.

The components of the Company's net deferred income tax assets and liabilities at June 30, 2014 are as follows:



	As of June 30, 2014
Deferred tax assets:
Litigation accrual	$	500
Partnership basis differences	21,452
Total deferred tax assets	21,952
Deferred tax liabilities:
Income tax deferral due to fiscal year end	995
Total deferred tax liabilities	995
Less valuation allowance	—
Total net deferred tax assets	$	20,957

In connection with completion of the Company's IPO on February, 5, 2014, the Company recorded deferred tax assets of $18,303 associated with basis differences in assets upon acquiring an interest in Malibu Boats Holdings, LLC and in anticipation of making a Section 754 election. The Company also recorded $13,636 in Tax Receivable Agreement liabilities representing 85% of the tax savings that the Company will receive in connection with the Section 754 election. The Company recorded a corresponding reduction to paid-in capital for the difference between the Tax Receivable Agreement liability and the related deferred tax asset.

On an annual basis, the Company performs a comprehensive analysis of all forms of positive and negative evidence to determine whether realizability of deferred tax assets is more likely than not. During each interim period, the Company updates its annual analysis for significant changes in the positive and negative evidence. At June 30, 2014, the Company concluded that no valuation allowance against deferred tax assets was necessary.

Unrecognized tax benefits are discussed in the Company's accounting policy for income taxes (refer to Note 1, Organization, Basis of Presentation, and Summary of Significant Accounting Policies - Income Taxes). As of June 30, 2014, there was no liability for unrecognized tax benefits. Tax years 2011 through 2013 for the Company's subsidiary, Malibu Boats Holdings, LLC, remain open to examination in certain tax jurisdictions. The Company has not yet filed a tax return and therefore has no open tax years.