NOTE J — INCOME TAXES

The components of income before income taxes, equity in earnings and extraordinary item are as follows:


	Year Ended December 31,
	2016			2015			2014
	(in thousands)
Domestic	$	22,114		$	22,096		$	10,251
Foreign		(112	)		(3,765	)		3,611

Total income before income taxes and equity in earnings	$	22,002		$	18,331		$	13,862

The provision for income taxes (before equity in earnings) consists of:


	Year Ended December 31,
	2016			2015			2014
				(in thousands)
Current:
Federal	$	8,000		$	5,584		$	4,709
State and local		498			1,879			1,284
Foreign		483			604			1,691
Deferred		(1,951	)		(1,440	)		(1,859	)

Income tax provision	$	7,030		$	6,627		$	5,825

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred income tax assets are as follows:


	December 31,
	2016		2015
	(in thousands)
Deferred income tax assets:
Deferred rent expense	$	3,706	$	4,028
Stock options		4,593		4,179
Inventory		1,190		1,298
Operating loss carry-forward		2,568		2,213
Accounts receivable allowances		463		217
Accrued compensation		944		867
Other		2,784		2,820

Total deferred income tax assets	$	16,248	$	15,622

Significant components of the Company’s net deferred income tax asset (liability) are as follows:


	December 31,
	2016			2015
	(in thousands)
Deferred income tax liabilities:
Depreciation and amortization	$	(1,268	)	$	(3,121	)
Intangibles		(9,815	)		(12,380	)
Equity in earnings		24			(154	)

Total deferred income tax liabilities		(11,059	)		(15,655	)

Net deferred income tax asset (liability)		5,189			(33	)
Valuation allowance		(2,396	)		(2,077	)

Net deferred income tax asset (liability)	$	2,793		$	(2,110	)

The Company has generated various state net operating loss carryforwards of which, $13.1 million remained at December 31, 2016 that begin to expire in 2026. The Company has net operating losses in foreign jurisdictions of $5.8 million at December 31, 2016 that begin to expire in 2020. The reduction in the deferred tax liabilities is primarily due to the enactment of lower corporate income tax rates in the United Kingdom, from 20% in 2016 to 17% in 2020. The valuation allowance which remained as of December 31, 2016 relates to certain state and foreign net operating losses.

The provision for income taxes (before equity in earnings) differs from the amounts computed by applying the applicable federal statutory rates as follows:


	Year Ended December 31,
	2016			2015			2014
Provision for federal income taxes at the statutory rate		35.0	%		35.0	%		35.0	%
Increases (decreases):
State and local income taxes, net of Federal income tax benefit		3.6			5.3			4.9
Foreign rate differences		(7.9	)		(8.6	)		(2.7	)
Non-deductible expenses		3.4			5.5			6.4
Other		(2.1	)		(1.0	)		(1.6	)

Provision for income taxes		32.0	%		36.2	%		42.0	%

The estimated values of the Company’s gross uncertain tax positions at December 31, 2016, 2015 and 2014 are liabilities of $109,000, $157,000 and $572,000, respectively, and consist of the following:


	Year Ended December 31,
	2016			2015			2014
	(in thousands)
Balance at January 1	$	(157	)	$	(572	)	$	(351	)
Additions based on tax positions related to the current year		—			(15	)		—
Additions for tax positions of prior years		—			—			(221	)
Settlements		48			430			—

Balance at December 31	$	(109	)	$	(157	)	$	(572	)

The Company had approximately $29,000 and $42,000, net of federal and state tax benefit, accrued at December 31, 2016 and 2015, respectively, for the payment of interest. The Company’s policy for recording interest and penalties is to record such items as a component of the provision for income taxes.

If the Company’s tax positions are ultimately sustained, the Company’s liability, including interest, would be reduced by $122,000 all of which would impact the Company’s tax provision. On a quarterly basis, the Company evaluates its tax positions and revises its estimates accordingly. The Company believes that it is reasonably possible that $54,000 of its tax positions will be resolved within the next twelve months.

The Company is no longer subject to U.S. Federal income tax examinations for the years prior to 2014. The Company has identified the following jurisdictions as “major” tax jurisdictions: U.S. Federal, California, Massachusetts, Illinois, New York, New Jersey and the United Kingdom. At December 31, 2016, the periods subject to examination by the Company’s major state jurisdictions are the years ended 2012 through 2015.