ZIX CORP

14. Income Taxes

Components of the income taxes are as follows:

(In thousands)	2017			2016		2015
Current:
U.S.	$	183		$	100	$	58
State		(196	)		329		196
Foreign		156			75		146
Deferred
Federal		18,461			3,185		2,744
Foreign		2			3		—
Income tax expense	$	18,606		$	3,692	$	3,144

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (‘the Tax Act”) which significantly changed U.S. tax law. The Tax Act, among other things, lowered the federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018. Consequently, we remeasured our deferred tax assets as of December 31, 2017, which increased our income tax expense by approximately $12.5 million.

A reconciliation of the expected U.S. tax expense (benefit) to income taxes is as follows:

(In thousands)	2017			2016		2015
Expected tax expense at U.S. statutory rate	$	3,587		$	3,250	$	2,775
Change in Corporate Tax Rate- Deferreds		12,473			—		—
Decrease in valuations allowance- Other		2,064			—		—
Nondeductible expense and nontaxable income		890			114		133
State income taxes		(129	)		217		129
Foreign income taxes		159			78		146
Other		(438	)		33		(39	)
Income tax expense	$	18,606		$	3,692	$	3,144

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. Components of our U.S. deferred income taxes as of December 31, 2017 and 2016 are as follows:

(In thousands)	2017			2016
Deferred tax assets:
Nondeductible	$	112		$	157
U.S. net operating loss carryforwards		48,769			81,791
State net operating loss carryforwards		321			268
Tax credit carryforwards		6,450			6,029
Stock-based compensation		750			1,536
Intangible assets		(1,342	)		180
Depreciable assets		851			1,422
Other assets		1,039			1,065
Total deferred tax assets		56,950			92,448
Deferred tax liabilities:
Prepaid expenses		(532	)		(696	)
Total deferred tax assets		56,418			91,752
Less valuation allowance		(30,773	)		(46,028	)
Net deferred tax assets	$	25,645		$	45,724

The Company has partially reserved its U.S. net deferred tax assets in 2017 and 2016 due to the uncertainty of future taxable income. The Company has U.S. net operating loss carryforwards of approximately $232 million which begin to expire in 2020. The Company has state credits that net of federal tax expense total $2.2 million which can be utilized through 2027 and state net operating losses that have various expiration dates. The Company also has tax credit carryforwards of approximately $4.2 million consisting of business tax credits which begin to expire in 2017 and alternative minimum tax credits which do not expire.

We have determined that utilization of existing net operating losses against future taxable income is not limited by Section 382 of the Internal Revenue Code. Future ownership changes, however, may limit the Company's ability to fully utilize its existing net operating loss carryforwards against any future taxable income.

The Company or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and in the Canadian federal and provincial jurisdictions. We have not taken a tax position that, if challenged, would have a material effect on the financial statements or the effective tax rate for the twelve-months ended December 31, 2017, or during the prior three years. We have determined it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next twelve months. We are currently subject to a three-year statute of limitations by major tax jurisdictions.