11.	INCOME TAXES

We account for our tax positions in accordance with Codification Topic Income Taxes. Under the guidance, we evaluate uncertain tax positions based on the two-step approach. The first step is to evaluate each uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in an audit, including resolution of related appeals or litigation processes, if any. For tax positions that are not likely of being sustained upon audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement.

As of March 31, 2013, we had $316 thousand of total gross unrecognized tax benefits recorded for uncertain income tax position in accordance with Income Taxes in the Codification. During the year ended March 31, 2014, this liability decreased to $149 thousand due to statutes of limitations expiring.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

	Year Ended March 31,
	2014			2013

Beginning balance	$	316		$	316
Reductions to uncertain tax positions		(167	)		-
Ending balance	$	149		$	316

At March 31, 2014, if the unrecognized tax benefits of $149 thousand were to be recognized, including the effect of interest, penalties and federal tax benefit, the impact would have been $193 thousand. At March 31, 2013, if the unrecognized tax benefits of $316 thousand were to be recognized, including the effect of interest, penalties and federal tax benefit, the impact would have been $434 thousand.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the fiscal years ended March 31, 2014 and 2013, we recognized $7 thousand and $17 thousand, respectively, of interest related to uncertain tax positions, and did not recognize any additional penalties. We had $65 thousand and $197 thousand accrued for the payment of interest at March 31, 2014 and 2013, respectively.

We file income tax returns, including returns for our subsidiaries, with federal, state, local, and foreign jurisdictions. Tax years 2010, 2011 and 2012 are subjected to examination by federal and state taxing authorities. Various state and local income tax returns are also under examination by taxing authorities. We do not believe that the outcome of any examination will have a material impact on our financial statements.

A reconciliation of income taxes computed at the statutory federal income tax rate of 35% to the provision for income taxes included in the consolidated statements of operations is as follows (in thousands, except percentages):

	Year Ended March 31,
	2014			2013			2012

Statutory federal income tax rate		35	%		35	%		35	%
Income tax expense computed at the U.S. statutory federal rate	$	21,040		$	20,555		$	13,850
State income tax expense—net of federal benefit		3,080			2,894			2,096
Non-deductible executive compensation		248			150			152
Other		457			316			109
Provision for income taxes	$	24,825		$	23,915		$	16,207
Effective income tax rate		41.3	%		40.7	%		41.0	%

The effective income tax rate for the year ended March 31, 2014 was 41.3%, a change from 40.7% of the previous fiscal year. The change in the effective income tax rate is due to changes in state apportionment factors.

The components of the provision for income taxes are as follows (in thousands):

	Year Ended March 31,
	2014			2013			2012
Current:
Federal	$	23,313		$	20,041		$	12,266
State		5,033			4,453			3,088
Foreign		15			36			59
Total current expense		28,361			24,530			15,413

Deferred:
Federal		(3,274	)		(581	)		814
State		(262	)		(34	)		(20	)
Total deferred expense (benefit)		(3,536	)		(615	)		794

Provision for income taxes	$	24,825		$	23,915		$	16,207

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. Significant components of our deferred tax assets and liabilities were as follows (in thousands):

	March 31,
	2014			2013
Deferred Tax Assets:
Accrued vacation	$	1,700		$	1,345
Provision for credit losses		2,111			1,997
State net operating loss carryforward		1,287			1,505
Book compensation on discounted stock options		-			77
Deferred compensation		1,010			898
Deferred revenue		260			221
Foreign tax credit		11			-
Federal net operating loss carry forward		88			168
Other accruals and reserves		1,740			2,043
Gross deferred tax assets		8,207			8,254
Less: valuation allowance		(1,287	)		(1,505	)
Net deferred tax assets		6,920			6,749

Deferred Tax Liabilities:
Basis difference in fixed assets		(1,056	)		(491	)
Basis difference in operating leases		(4,674	)		(8,765	)
Basis difference in tax deductible goodwill		(2,449	)		(2,288	)
Total deferred tax liabilities		(8,179	)		(11,544	)

Net deferred tax liabilities	$	(1,259	)	$	(4,795	)

Reported as:
Deferred tax assets - current	$	3,742		$	2,023
Deferred tax liabilities - long-term		(5,001	)		(6,818	)
Net deferred tax liabilities	$	(1,259	)	$	(4,795	)

As of March 31, 2014, we have state net operating losses of approximately $29.0 million, which will begin to expire in the year 2024.

The valuation allowance resulted from management's determination, based on available evidence, that it was more likely than not that the state net operating loss deferred tax asset balance of $1.3 million and $1.5 million as of March 31, 2014 and 2013, respectively, may not be realized.