INCOME TAXES

The provision for income taxes is comprised of the following (in thousands):



	2014			2013			2012
Current taxes:
Federal	$	(161	)	$	14,174		$	14,863
State	2,614			5,196			2,655
Foreign	951			488			368
Total current taxes	3,404			19,858			17,886
Deferred taxes:
Federal	10,198			(2,819		)	2,698
State	2,481			(1,026		)	392
Foreign	86			—			—
Total deferred taxes	12,765			(3,845		)	3,090
Provision for income taxes	$	16,169		$	16,013		$	20,976

The items accounting for the difference between income taxes computed at the statutory federal income tax rate and income taxes reported in the Consolidated Statements of Operations and Comprehensive Income are as follows (in thousands except percentages):



	2014			%		2013			%		2012			%
Income tax expense based on statutory rate	$	28,641		35.0	%	$	21,328		35.0	%	$	19,112		35.0	%
Increase (decrease) resulting from:
State income taxes, net of federal benefit	3,213			3.9		2,536			4.2		1,800			3.3
Tax credits, net	(18,564		)	(22.6	)	(10,790		)	(17.7	)	(1,915		)	(3.5	)
Non-deductible/non-taxable items	1,983			2.4		2,124			3.5		2,320			4.2
Foreign taxes	1,037			1.3		488			0.8		368			0.7
Other, net	(141		)	(0.2	)	327			0.5		(709		)	(1.3	)
Total taxes on income	$	16,169		19.8	%	$	16,013		26.3	%	$	20,976		38.4	%

Our effective tax rate on earnings for fiscal 2014 was 19.8%. The comparability of taxes on income for fiscal 2014, to the same period in 2013, was impacted primarily by the Work Opportunity Tax Credit ("WOTC"). This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. The Tax Increase Protection Act of 2014 was signed into law on December 19, 2014, retroactively restoring the WOTC for 2014. During fiscal 2014, we also generated approximately $8.7 million of credit benefit from prior year wages because more veterans with higher credits were certified than expected, our qualified workers worked longer generating more credits than expected, and many states processed a backlog of credit applications with higher than expected certification rates. During fiscal 2013, we generated approximately $4.6 million of credit benefit from prior year wages primarily because The American Taxpayer Relief Act of 2012 (the “Act") was signed into law on January 2, 2013, retroactively restoring 2012 WOTC.

Our effective tax rate on earnings for 2013 was 26.3% compared to 38.4% for 2012. The effective tax rate for 2012 excluded benefits of WOTC because it had largely expired at the end of 2011. The Act was signed into law on January 2, 2013, and retroactively restored the WOTC for 2012 and extended it through 2013. Because a change in the law is accounted for in the period of enactment, the retroactive effect of the Act on our U.S. federal taxes for 2012 was recognized in fiscal 2013. Accordingly, the decrease in the effective tax rate is due primarily to the benefit of the retroactively restored WOTC. The impact of WOTC on our effective tax rate is greater when our pre-tax income is lower. The primary difference between the statutory federal income tax rate of 35.0% and our annual effective income tax rate of 26.3%, is from the WOTC, state income taxes, and certain non-deductible expenses.

The components of deferred tax assets and liabilities were as follows (in thousands):



	December 26, 2014			December 27, 2013
Deferred tax assets:
Allowance for doubtful accounts	$	2,255		$	2,172
Workers’ compensation claims reserve	1,135			10,381
Accounts payable and other accrued expenses	2,641			2,152
Net operating loss carryforwards	7,277			534
Tax credit carryforwards	7,343			620
Accrued wages and benefits	7,918			6,822
Deferred compensation	2,991			2,179
Other	1,663			970
Total	33,223			25,830
Valuation allowance	(2,844		)	(844		)
Total deferred tax asset, net of valuation allowance	30,379			24,986
Deferred tax liabilities:
Prepaid expenses, deposits and other current assets	(2,888		)	(1,662		)
Depreciation and amortization (1)	(40,804		)	(10,379		)
Other	(1,011		)	(1,092		)
Total deferred tax liabilities	(44,703		)	(13,133		)
Net deferred tax (liabilities) asset, end of year	(14,324		)	11,853
Net deferred tax asset, current	5,444			7,640
Net deferred tax (liabilities) asset, non-current	$	(19,768	)	$	4,213


(1)	We have $21.8 million of tax basis in goodwill from the prior owners' acquisition of Seaton in 2005, which will continue to produce amortization deductions through 2020.

Deferred taxes related to our foreign currency translation were de minimis for 2014, 2013, and 2012.

The following table summarizes our net operating losses (“NOLs”) and credit carryforwards along with their respective valuation allowance (in thousands):



	Carryover Tax Benefit		Valuation Allowance			Expected Benefit		Year Expiration Begins
Year end tax attributes:
Seaton federal NOLs	$	4,679	$	—		$	4,679	2029
Seaton federal WOTCs	6,665		—			6,665		2024
Seaton state NOLs	1,570		(1,570		)	—		Various
Seaton foreign NOLs	509		(498		)	11		Various
Puerto Rico NOLs	519		(519		)	—		2015
California zone credits (1)	515		(257		)	258		2023
Foreign tax credits	163		—			163		2024
Total	$	14,620	$	(2,844	)	$	11,776


(1)	The California Zone Credits fully expire in 2023.

Our ability to utilize federal net operating losses and WOTC that carry forward from the Seaton acquisition are limited by IRC Sec. 382 of the Internal Revenue Code. However, pursuant to Notice 2003-65, 2003-40 IRB 747, this limit is increased in the five post-acquisition years by Seaton’s net unrealized built-in gains. The amount of tax we may offset with Seaton carryover tax attributes is approximately $5.0 million annually for five years after the acquisition.

Pre-tax income of operations outside the U.S. was $3.1 million, $1.3 million, and $1.3 million in 2014, 2013, and 2012, respectively. We have not provided for deferred U.S. income taxes relating to undistributed earnings of $1.3 million and $3.0 million for Seaton India and Seaton Canada, respectively, as we consider those earning to be permanently invested. Determination of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable. Deferred taxes are provided on $7.2 million of unremitted accumulated earnings of our Labour Ready Canada subsidiary that may be remitted to the U.S. We have recorded deferred tax liabilities of $1.0 million, $1.1 million, and $0.9 million in 2014, 2013, and 2012, respectively, related to these Labour Ready Canada earnings that may be remitted.

As of December 26, 2014, our liability for unrecognized tax benefits was $2.0 million. If recognized, $1.3 million would impact our effective tax rate. We do not believe the amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the year ended December 26, 2014. This liability is recorded in Other non-current liabilities on our Consolidated Balance Sheets. In general, the tax years 2011 through 2013 remain open to examination by the major taxing jurisdictions where we conduct business.

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):



	2014			2013			2012
Balance, beginning of fiscal year	$	2,035		$	1,884		$	1,656
Increases for tax positions related to the current year	389			402			494
Reductions due to lapsed statute of limitations	(385		)	(251		)	(266		)
Balance, end of fiscal year	$	2,039		$	2,035		$	1,884

We recognize interest and penalties related to unrecognized tax benefits within Income tax expense on the accompanying Consolidated Statements of Operations and Comprehensive Income. Accrued interest and penalties are included within Other long-term liabilities on the Consolidated Balance Sheets. Related to the unrecognized tax benefits noted above, we accrued a de minimis amount for interest and penalties during fiscal 2014 and, in total, as of December 26, 2014, have recognized a liability for penalties of $0.2 million and interest of $0.8 million.