CHASE CORP

Note 7—Income Taxes

Domestic and foreign pre‑tax income for the years ended August 31, 2017, 2016 and 2015 was:


	Year Ended August 31,
	2017		2016		2015
United States	$	52,723	$	40,928	$	31,168
Foreign		8,169		9,182		10,058
	$	60,892	$	50,110	$	41,226

The provision (benefit) for income taxes for the years ended August 31, 2017, 2016 and 2015 was:


	Year Ended August 31,
	2017		2016		2015
Current:
Federal	$	17,714	$	14,777	$	11,831
State		1,872		1,821		1,475
Foreign		1,555		2,023		2,077
Total current income tax provision		21,141		18,621		15,383

Deferred:
Federal		(1,984)		(879)		(405)
State		(453)		(324)		(188)
Foreign		174		(115)		23
Total deferred income tax benefit		(2,263)		(1,318)		(570)

Total income tax provision	$	18,878	$	17,303	$	14,813

The provision (benefit) for income taxes differs from the amount computed by applying the federal statutory income tax rate to income before income taxes. The Company’s combined federal, state and foreign effective tax rate as a percentage of income before taxes for fiscal 2017, 2016 and 2015, net of offsets generated by federal, state and foreign tax benefits, was 31.0%, 34.5% and 35.9%, respectively. The following is a reconciliation of the effective income tax rate with the U.S. federal statutory income tax rate for the years ended August 31, 2017, 2016 and 2015:


	Year Ended August 31,
	2017		2016		2015
Federal statutory rates	35.0	%	35.0	%	35.0	%
Adjustment resulting from the tax effect of:
State and local taxes, net of federal benefit	1.5	%	1.9	%	2.0	%
Domestic production deduction	(2.5)	%	(2.9)	%	(2.0)	%
Foreign tax rate differential	(1.4)	%	(2.5)	%	(3.2)	%
Adjustment to uncertain tax position	0.0	%	0.0	%	0.5	%
Research credit generated	(0.3)	%	(0.3)	%	(0.3)	%
Stock Compensation	(3.1)	%	0.0	%	0.0	%
Noncontrolling partnership interest	0.0	%	0.0	%	(0.1)	%
Permanent items	1.6	%	0.0	%	0.0	%
Tax effect of undistributed earnings	1.4	%	2.7	%	3.4	%
Other	(1.2)	%	0.6	%	0.6	%
Effective income tax rate	31.0	%	34.5	%	35.9	%

The following table summarizes the tax effect of temporary differences on the Company’s income tax provision:


	Year Ended August 31,
	2017		2016		2015
Current income tax provision	$	21,141	$	18,621	$	15,383

Deferred provision (benefit):

Allowance for doubtful accounts		8		34		3
Inventories		139		(80)		(88)
Pension expense		(39)		(542)		(190)
Deferred compensation		250		272		(68)
Loan finance costs		5		5		6
Accruals		(270)		(95)		(90)
Warranty reserve		(89)		19		37
Depreciation and amortization		(2,714)		(2,166)		(1,794)
Restricted stock grant		(214)		(8)		222
Unrepatriated earnings		832		1,338		1,401
Valuation allowance		24		—		—
Foreign amortization		(2)		(21)		(70)
Other accrued expenses		(193)		(74)		61

Total deferred income tax benefit		(2,263)		(1,318)		(570)

Total income tax provision	$	18,878	$	17,303	$	14,813

The following table summarizes the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:


	As of August 31,
	2017		2016
Deferred tax assets:
Allowance for doubtful accounts	$	228	$	236
Inventories		1,462		1,623
Accruals		800		531
Warranty reserve		120		31
Pension accrual		5,078		5,655
Deferred compensation		358		608
Deferred revenue		334		—
Loan finance costs		27		32
Restricted stock grants		792		589
Non-qualified stock options		26		15
Foreign other		—		428
Other		280		11
		9,505		9,759
Deferred tax liabilities:
Prepaid liabilities		(29)		(44)
Unrepatriated earnings		(2,298)		(2,486)
Unrealized gain/loss on restricted investments		(177)		(141)
Depreciation and amortization		(5,362)		(8,078)
Other		(25)		(16)
		(7,891)		(10,765)
Net deferred tax assets (liabilities)	$	1,614	$	(1,006)

Given our cash position and borrowing capability in the U.S. and the potential for increased investment and acquisitions in foreign jurisdictions, we do not have a history of repatriating a significant portion of our foreign cash. However, we do not currently take the position that undistributed foreign subsidiaries’ earnings are considered to be permanently reinvested. Accordingly, we recognize a deferred tax liability for the estimated future tax effects attributable to temporary differences due to these unremitted earnings. In the event that circumstances should change in the future and we decide to repatriate these foreign amounts to fund U.S. operations, the Company would pay the applicable U.S. taxes on these repatriated foreign amounts, less any tax credit offsets, to satisfy all previously recorded tax liabilities.

A summary of the Company’s adjustments to its uncertain tax positions in fiscal years ended August 31, 2017, 2016 and 2015 are as follows:


	2017		2016		2015
Balance, at beginning of the year	$	1,229	$	1,249	$	1,030
Increase for tax positions related to the current year		65		37		75
Increase for tax positions related to prior years		16		98		—
Increase for interest and penalties		6		102		144
Decreases for lapses of statute of limitations		(59)		(257)		—
Balance, at end of year	$	1,257	$	1,229	$	1,249

The unrecognized tax benefits mentioned above include an aggregate of $647 of accrued interest and penalty balances related to uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. An increase in accrued interest and penalty charges of approximately $40, net of federal tax expense, was recorded as a tax expense during the current fiscal year. The Company does not anticipate that its accrual for uncertain tax positions will be reduced by a material amount over the next twelve-month period, as it does not expect to settle any potential disputed items with the appropriate taxing authorities nor does it expect the statute of limitations to expire for any items.

The Company is subject to U.S. federal income tax, as well as to income tax of multiple state, local and foreign tax jurisdictions. The statute of limitations for all material U.S. federal, state, and local tax filings remains open for fiscal years subsequent to 2013. For foreign jurisdictions, the statute of limitations remains open in the U.K. for fiscal years subsequent to 2013 and in France for fiscal years subsequent to 2016.