Note 16. Income Taxes

 

The Company files a consolidated federal income tax return. The Company files consolidated or separate state income tax returns as permitted by the individual states in which it operates. The effective tax rate for the years ended December 31, 2016 and 2015 exceeds the statutory rate due to the impairment of goodwill in each respective year and the valuation allowance established against deferred tax assets. The Company had no liability recorded for unrecognized tax benefits at December 31, 2016 and 2015.

 

Net deferred tax assets and liabilities consist of the following as of December 31, 2016:

 

 

Net deferred tax assets and liabilities consist of the following as of December 31, 2015:

 

 

The net deferred tax assets and (liabilities) are classified in the consolidated balance sheet as follows as of December 31, 2016 and 2015:

 

 

At December 31, 2016, the Company had gross deferred tax assets of $40,037 and a net deferred tax liability of $9,675. At December 31, 2015, the Company had gross deferred tax assets of $46,441 and a net deferred tax asset of $5,165. A valuation allowance of $49,712 and $41,276 was recognized at December 31, 2016 and December 31, 2015, respectively, to reduce the deferred tax assets to the amount that was more likely than not expected to be realized. In evaluating whether a valuation allowance was needed for the deferred tax assets, the Company considered the ability to carry net operating losses back to prior periods, reversing taxable temporary differences, and estimates of future taxable income. There have been no credits or net operating losses that have expired. The projections were evaluated in light of past operating results and considered the risks associated with future taxable income related to macroeconomic conditions in the markets in which the Company operates, regulatory developments and cost containment. The Company will continue to evaluate the need for a valuation allowance against deferred tax assets in future periods and will adjust the allowance as necessary if it determines that it is not more likely than not that some or all of the deferred tax assets are expected to be realized. The deferred tax liability which is reflected above in Deferred Tax Liabilities – Noncurrent, represents a source of future taxable income related to our indefinite lived intangible that for financial reporting purposes cannot be used to support the realization of deferred tax assets with a finite life.

 

The provision for income taxes charged to operations for the years ended December 31, 2016, 2015 and 2014 consists of the following:

 

 

 

The amount of tax goodwill at the acquisition date of the Company in 2016 exceeded the reported amount of goodwill for financial statement reporting purposes. The accounting for deferred income taxes prohibits immediate recognition of a deferred tax asset created by tax goodwill in excess of book goodwill for acquisitions occurring prior to 2009. The recognition of the tax benefits are required to be recognized when the excess tax goodwill is amortized and a current tax benefit is realized on the Company’s income tax return. This deduction will occur over the next 15 years from the acquisition date. The benefit for that tax deduction is recognized consistent with the initial recognition of an acquired tax benefit, which requires this amount to be applied as a reduction of goodwill. For reporting purposes, the amount of the tax deduction and the tax benefit attributable to the tax deduction is referred to as “the benefit applied to reduce goodwill” and will be recorded as additional income tax expense in these financial statements and will reduce the carrying amount of goodwill in the year a tax benefit is realized . The annual amount of tax amortization of goodwill for the original purchase in 2006 amounted to approximately $14,560 in 2016, 2015 and 2014.

 

The reconciliation between income tax expense for financial statement purposes and the amount computed by applying the statutory federal income tax rate of 35% to pretax income for the years ended December 31, 2016, 2015 and 2014 is as follows: