14. INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for net operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Income tax expense consists of the following (in thousands):



	Year Ended December 31,
	2014		2013		2012
Current	$	67,389	$	1,397	$	2,689
Deferred		23,537		27,493		10,704
Total	$	90,926	$	28,890	$	13,393

Differences between the income tax expense computed at the statutory federal income tax rate and as presented on the consolidated statements of operations are summarized as follows (in thousands):



		Year Ended December 31,
	2014		2013		2012
Tax expense at federal statutory
rate of 35%	$	87,650	$	25,299	$	8,810
State income tax expense, net
of federal benefit		6,810		2,002		4,036
Qualified production activities deduction		(4,637)		-		-
Increase (decrease) in valuation allowance
against deferred tax assets		-		(709)		-
Nondeductible compensation		848		1,491		-
Other		255		807		547
Income tax expense	$	90,926	$	28,890	$	13,393

Significant components of deferred tax assets and liabilities are as follows (in thousands):



	December 31,
	2014		2013
Deferred tax assets:
Net operating loss carryforwards - State	$	471	$	1,232
Tax credit carryforwards - Federal		-		2,062
Tax credit carryforwards - State		4,910		5,662
Derivative financial instruments		975		2,297
Organizational and start-up costs		851		2,371
Stock-based compensation		2,868		2,975
Accrued expenses		7,196		7,219
Capital leases		3,743		-
Other		1,532		1,690
Total deferred tax assets		22,546		25,508

Deferred tax liabilities:
Convertible debt	$	(6,878)	$	(8,444)
Fixed assets		(118,132)		(94,864)
Investment in partnerships		(1,534)		(1,786)
Total deferred tax liabilities		(126,544)		(105,094)
Valuation allowance		(3,742)		(3,765)
Deferred income taxes	$	(107,740)	$	(83,351)

As of December 31, 2013, the Company had utilized all of its federal net operating loss carryforwards of $30.5 million from 2012. The Company continues to maintain a valuation allowance against some of its net deferred tax assets due to the uncertainty of realizing these assets in the future. The deferred tax valuation allowance of $3.7 million as of December 31, 2014 relates to certain Iowa and Nebraska tax credits that started expiring in 2014 and will continue to expire through 2016. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and other tax attributes during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

The Company conducts business and files tax returns in several states within the U.S. The Company’s federal and state returns for the tax years ended November 30, 2011 and later are still subject to audit.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):



Unrecognized Tax Benefits
Balance at January 1, 2014	$	279
Additions for current year tax positions		-
Additions for prior year tax positions		33
Reductions for prior year tax positions		-
Reductions as a result of a lapse of applicable statue of expirations		-
Balance at December 31, 2014	$	312

The unrecognized tax benefits, if recognized, would favorably impact the Company’s effective tax rate. The Company accrues interest and penalties associated with uncertain tax positions as part of selling, general and administrative expense.