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INCOME TAXES | 12 Months Ended
--- | ---
Dec. 31, 2012
INCOME TAXES |
INCOME TAXES | NOTE 4 INCOME TAXES The income tax expense for the years ended December 31, 2012 and 2011 consists of the following:
|  | 2012 |  | 2011 |
--- | --- | --- | --- | --- | ---
Current taxes—Federal |  | $ | 384,000 |  | $ | 273,000 |
Current taxes—State |  |  | (15,000 | ) |  | (13,000 | )
Current taxes—Foreign |  |  | 25,000 |  |  | 23,000 |
Deferred taxes—Federal |  |  | (109,000 | ) |  | 223,000 |
Deferred taxes—State |  |  | 13,000 |  |  | 55,000 |
Income tax expense |  | $ | 298,000 |  | $ | 561,000 |
The statutory rate reconciliation for the years ended December 31, 2012 and 2011 is as follows:
|  | 2012 |  | 2011 |
--- | --- | --- | --- | --- | ---
Statutory federal tax provision |  | $ | 315,000 |  | $ | 595,000 |
State income taxes |  |  | 28,000 |  |  | 52,000 |
Effect of foreign operations |  |  | (11,000 | ) |  | (6,000 | )
Income tax credits |  |  | (14,000 | ) |  | (66,000 | )
Permanent differences |  |  | 24,000 |  |  | 1,000 |
Other |  |  | (44,000 | ) |  | (15,000 | )
Income tax expense |  | $ | 298,000 |  | $ | 561,000 |
Income from operations before income taxes was derived from the following sources:
|  | 2012 |  | 2011 |
--- | --- | --- | --- | --- | ---
Domestic |  | $ | 770,440 |  | $ | 1,666,281 |
Foreign |  |  | 156,998 |  |  | 84,649 |
Total |  | $ | 927,438 |  | $ | 1,750,930 |
Deferred tax assets (liabilities) at December 31, 2012 and 2011, consist of the following:
|  | 2012 |  | 2011 |
--- | --- | --- | --- | --- | ---
Allowance for uncollectable accounts |  | $ | 57,000 |  | $ | 45,000 |
Inventories reserve |  |  | 537,000 |  |  | 408,000 |
Accrued vacation |  |  | 353,000 |  |  | 352,000 |
Non-compete amortization |  |  | 335,000 |  |  | 390,000 |
Stock-based compensation |  |  | 68,000 |  |  | 69,000 |
State Tax NOL |  |  | 139,000 |  |  | 157,000 |
Other |  |  | 175,000 |  |  | 236,000 |
Deferred tax assets |  |  | 1,664,000 |  |  | 1,657,000 |
Prepaid expenses |  |  | (192,000 | ) |  | (200,000 | )
Property and equipment |  |  | (842,000 | ) |  | (923,000 | )
Deferred tax liabilities |  |  | (1,034,000 | ) |  | (1,123,000 | )
Net deferred tax assets |  | $ | 630,000 |  | $ | 534,000 |
The net deferred taxes summarized above have been classified on the accompanying consolidated balance sheets as follows:
Net current deferred tax assets |  | $ | 857,000 |  | $ | 805,000 |
Net non-current deferred tax liabilities |  |  | (227,000 | ) |  | (271,000 | )
Net deferred tax assets |  | $ | 630,000 |  | $ | 534,000 |
We have determined that it is more likely than not that our deferred tax assets will be realized, principally through anticipated taxable income in future tax years. As a result, we have determined that establishing a valuation allowance on our deferred tax assets is not necessary. The tax effects from an uncertain tax position can be recognized in our consolidated financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The following table sets forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for the years ended December 31, 2012 and 2011:
Balance as of December 31, 2010 |  | $ | 114,000 |
Tax positions related to current year: |  |  |  |
Additions |  |  | 100,000 |
Reductions |  |  | (96,000 | )
Balance as of December 31, 2011 |  |  | 118,000 |
Tax positions related to current year: |  |  |  |
Additions |  |  | 22,000 |
Reductions |  |  | 0 |
Balance as of December 31, 2012 |  | $ | 140,000 |
The $140,000 of unrecognized tax benefits as of December 31, 2012 includes amounts which, if ultimately recognized, will reduce our annual effective tax rate. It is included in Other Long-Term Liabilities on the accompanying consolidated balance sheets. Our policy is to accrue interest related to potential underpayment of income taxes within the provision for income taxes. The liability for accrued interest as of December 31, 2012 and 2011 was not significant. Interest is computed on the difference between our uncertain tax benefit positions and the amount deducted or expected to be deducted in our tax returns. We are subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, we are no longer subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2009.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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