12.	Income Taxes

The components of income from continuing operations before provision for income taxes consisted of the following (in thousands):

 

		Years Ended December 31,
		2018				2017				2016
Income (loss) before provision for income taxes:
United States		$	119,446			$	100,031			$	108,797
Foreign			(2,226	)			(805	)			(1,695	)
		$	117,220			$	99,226			$	107,102

 

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

 

		Years Ended December 31,
		2018				2017				2016
The provision (benefit) for income taxes consisted of the following:
Federal:
Current		$	24,101			$	28,993			$	36,228
Deferred			(268	)			13,249				(337	)
		$	23,833			$	42,242			$	35,891
State:
Current		$	6,004			$	5,883			$	6,700
Deferred			162				(423	)			(146	)
		$	6,166			$	5,460			$	6,554
Foreign:
Current		$	—			$	—			$	—
Deferred			(36	)			—				—
		$	(36	)		$	—			$	—
		$	29,963			$	47,702			$	42,445

On December 22, 2017, the Tax Cuts and Jobs Act (“the Act”) was enacted, which significantly changed the U.S. corporate income tax laws by, among other items, reducing the U.S. corporate income tax rate to 21% from 35% starting in 2018, further limiting 162(m) deductions and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. As a result of the Act, the Company revalued its deferred taxes, net due to the changes in the U.S. corporate statutory federal income tax rate and recorded a net charge of $11.6 million in the provision for income taxes in 2017. The Company’s accounting for income tax effects of the Act has been completed as of December 31, 2018.

 

Significant components of the Company’s deferred tax assets, net consisted of the following (in thousands):

 

		December 31,
		2018				2017
Deferred Tax Assets:
Accrued expenses and bonuses		$	2,258			$	1,307
Bad debt and other reserves			1,840				1,416
Deferred compensation			13,337				12,693
Stock-based compensation			8,912				9,144
Deferred rent			1,470				1,283
Net operating and capital loss carryforwards			2,335				1,809
Other comprehensive income			330				6
State taxes			11				622
Other			25				—
Deferred tax assets before valuation allowance			30,518				28,280
Valuation allowance			(2,570	)			(1,893	)
Deferred Tax Assets		$	27,948			$	26,387
Deferred Tax Liabilities:
Fixed assets		$	(4,086	)		$	(2,861	)
Prepaid expenses			(789	)			(886	)
Other			(114	)			—
Deferred Tax Liabilities			(4,989	)			(3,747	)
Deferred Tax Assets, Net		$	22,959			$	22,640

As of December 31, 2018, and 2017, the Company had state and Canadian net operating losses of approximately $9.4 million and $7.8 million, respectively, principally all of which will begin to expire in 2033.

A valuation allowance is required when it is more-likely-than not that all or a portion of a deferred tax asset will not be realized. Realization of a deferred tax asset is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies and reversals of existing taxable temporary differences. The Company determined that as of December 31, 2018 and 2017, $2.6 million and $1.9 million, respectively, of the deferred tax assets related to state and Canadian losses do not satisfy the recognition criteria. The Company has therefore recorded a valuation allowance for this amount. The valuation allowance for deferred tax assets was increased by $677,000, $170,000 and $412,000 during 2018, 2017 and 2016, respectively. The increases are primarily related to the Company’s Canadian operations.

 

The provision for income taxes differs from the amount computed by applying the statutory federal corporate income tax rate to income before provision for income taxes and consisted of the following (in thousands):

 

		Years Ended December 31,
		2018								2017								2016
		Amount				Rate				Amount				Rate				Amount				Rate
Income tax expense at the federal statutory rate		$	24,616				21.0	%		$	34,729				35.0	%		$	37,485				35.0	%
State income tax expense, net of federal benefit			4,550				3.9	%			3,577				3.6	%			4,346				4.1	%
Effect of state and foreign rate change on deferred taxes			69				0.1	%			(30	)			—				(79	)			(0.1	)%
Windfall tax benefits, net related to stock-based compensation			(1,535	)			(1.3	)%			(2,568	)			(2.6	)%			—				—
Change in valuation allowance			677				0.6	%			170				0.2	%			412				0.4	%
Effect of rate and other changes on federal deferred taxes, net due to enactment of the Act			—				—				11,644				11.7	%			—				—
Permanent and other items(1)			1,586				1.3	%			180				0.2	%			281				0.2	%
		$	29,963				25.6	%		$	47,702				48.1	%		$	42,445				39.6	%

 

(1)	Permanent items relate principally to compensation charges and meals and entertainment.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits consisted of the following (in thousands):

 

		Years Ended December 31,
		2018				2017				2016
Beginning balance		$	—			$	—			$	—
Gross increase/(decrease) as a result of positions taken:
Prior periods			1,246				—				—
Current period			—				—				—
Settlement with tax authorities			—				—				—
Expiration of applicable statutes of limitation			—				—				—
Ending balance		$	1,246			$	—			$	—

It is reasonably possible that the unrecognized tax benefits balance may decrease by as much as $434,000 during the next 12 months due to the expiration of the statute of limitations. During the year ended December 31, 2018, penalties of $167,000 were recorded relating to unrecognized tax benefits.

The Company is subject to tax in various jurisdictions and, as a matter of ordinary course, the Company may be subject to income tax examinations by the federal, state and foreign taxing authorities for the tax years 2014 to 2018. The Company is not currently under income tax examination by any taxing authority.

The Company has not provided for U.S. taxes on unremitted earnings of its foreign subsidiary as this subsidiary is operating at a loss and has no earnings and profits to remit. As a result, deferred taxes were not provided related to the cumulative translation adjustments.