Income Taxes
The provision (benefit) for income taxes consists of the following as of September 30 (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | 18,701 |
| | $ | 5,382 |
| | $ | — |
|
State | 5,708 |
| | 3,549 |
| | 2,333 |
|
Total current tax provision | 24,409 |
| | 8,931 |
| | 2,333 |
|
Deferred: | | | | | |
Federal | (17,894 | ) | | 4,701 |
| | 1,735 |
|
State | (4,651 | ) | | (342 | ) | | (1,379 | ) |
Net deferred tax provision (benefit) | (22,545 | ) | | 4,359 |
| | 356 |
|
Income tax provision | $ | 1,864 |
| | $ | 13,290 |
| | $ | 2,689 |
|
The Company paid income taxes, net of any refunds, during fiscal 2017, 2016 and 2015 of $17.4 million, $12.6 million, and $1.9 million, respectively.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities consist of the following as of September 30 (in thousands):
|
| | | | | | | |
| 2017 | | 2016 |
Gross deferred tax assets: | | | |
Deferred compensation | $ | 1,300 |
| | $ | 1,371 |
|
Interest rate swap agreements | 62 |
| | 2,418 |
|
Accrued workers’ compensation | 11,147 |
| | 11,196 |
|
Net operating loss carryforwards | 6,215 |
| | 7,330 |
|
Allowance for bad debts | 6,398 |
| | 4,797 |
|
Stock compensation | 3,353 |
| | 2,040 |
|
Other accrued liabilities | 9,634 |
| | 4,666 |
|
| 38,109 |
| | 33,818 |
|
Valuation allowance | (6,215 | ) | | (7,322 | ) |
Deferred tax assets | 31,894 |
| | 26,496 |
|
Deferred tax liabilities: | | | |
Depreciation | (1,596 | ) | | (994 | ) |
Amortization of goodwill and intangible assets | (52,647 | ) | | (67,175 | ) |
Net deferred tax liabilities | $ | (22,349 | ) | | $ | (41,673 | ) |
The Company is required to record a valuation allowance to reduce the deferred tax assets if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management determined that valuation allowances at September 30, 2017 and 2016 of $6.2 million and $7.3 million, respectively, were necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The valuation allowances primarily related to certain state net operating loss carryforwards.
For federal purposes, the Company had no net operating loss carryforwards as of September 30, 2017. For state purposes, the Company had $139.4 million of net operating loss carryforwards for fiscal 2017, which expire from 2018 through 2037.
The following is reconciliation between the statutory and effective income tax rates at September 30 (in thousands):
|
| | | | | | | | |
| 2017 | | 2016 | | 2015 |
Federal income tax at statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income taxes, net of federal tax benefit | 8.5 | % | | 9.3 | % | | 3.6 | % |
Nondeductible compensation(1) | 7.9 | % | | 18.8 | % | | 0.8 | % |
Other nondeductible expenses | (0.4 | )% | | 1.5 | % | | 9.1 | % |
Credits | (22.5 | )% | | (6.6 | )% | | (3.0 | )% |
Other | (5.8 | )% | | 0.4 | % | | (5.7 | )% |
Effective tax rate | 22.7 | % | | 58.4 | % | | 39.8 | % |
(1) The higher impact on the effective rate for fiscal 2016 was due to a stock compensation charge of $10.5 million recorded in the first quarter of fiscal 2016 related to certain awards under our former equity compensation plan that vested in October 2015. Refer to Note 21 - Stock-Based Compensation for further information.
Companies may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
There was no unrecognized tax benefit for the years ended September 30, 2017, 2016 and 2015. The Company does not expect any significant changes to unrecognized tax benefits within the next twelve months.
The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense which is consistent with the recognition of these items in prior reporting periods. No interest and penalties were accrued as of September 30, 2017, 2016 and 2015.
The Company files a federal consolidated return and files various state income tax returns and, generally, the Company is no longer subject to income tax examinations by the taxing authorities for years prior to September 30, 2014. The Company believes that it has appropriate support for the income tax positions taken and to be taken on the Company’s income tax returns. In addition, the Company believes its accruals for income tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of the tax laws as applied to the facts of each matter.