Income Taxes

The provision for income taxes consists of the following (in thousands):



	Years Ended September 30,
	2016		2015
Current tax expense U.S.	$	136	$	137
Current tax expense (benefit) foreign	133		(30		)
Deferred income tax expense	—		—
Provision for income taxes	$	269	$	107

U.S. and foreign components of income (loss) before income taxes were as follows (in thousands):



	Years Ended September 30,
	2016			2015
U.S.	$	(3,504	)	$	(4,122	)
Foreign	456			(296		)
Income (loss) before income taxes	$	(3,048	)	$	(4,418	)

The reconciliation of income tax expense (benefit) computed at the appropriate country specific rate to income tax expense (benefit) is as follows (in thousands):



	Years Ended September 30,
	2016			2015
Income tax expense (benefit) at statutory rate	$	(1,036	)	$	(1,502	)
State income tax expense (benefit)	(130		)	(131		)
Foreign tax activity	9			56
R&D tax credit expiration	—			—
Permanent differences, net	274			523
Adjustment of temporary differences to income tax returns	—			189
Change in valuation allowance	1,152			972
Income tax expense	$	269		$	107

The significant components of the deferred tax accounts recognized for financial reporting purposes are as follows (in thousands):



	September 30,
	2016			2015
Deferred tax assets:
Net operating loss and other carryforwards	$	34,563		$	36,492
Common stock options	1,134			961
Unearned revenue	389			439
Other	423			63
Total deferred tax assets	36,509			37,955
Deferred tax liabilities:
Fixed assets	—			(149		)
Other	(144		)	(157		)
Total deferred tax liabilities	(144		)	(306		)

Net deferred tax asset	36,365			37,649
Valuation allowance	(36,299		)	(37,525		)
Equity gains on investment in Mediasite KK	(916		)	(916		)
Customer relationships	(718		)	(716		)
Goodwill amortization	(2,930		)	(2,690		)
Net deferred tax liability for goodwill and intangible assets amortization	$	(4,498	)	$	(4,198	)

The Company has a $66 thousand and $124 thousand deferred tax asset at September 30, 2016 and 2015, respectively, recorded within the prepaid expenses and other current assets line on the consolidated balance sheet and is primarily related to net operating losses of MSKK.

At September 30, 2016, the Company had net operating loss carryforwards of approximately $95 million for U.S. Federal and $43 million for state tax purposes. For Federal tax purposes, the carryforwards expire in varying amounts between 2019 and 2036. For state tax purposes, the carryforwards expire in varying amounts between 2016 and 2035. Utilization of the Company’s net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization. In addition, the Company has research and development tax credit carryforwards of approximately $418 thousand, which expire in varying amounts between 2019 and 2020.

The Company maintains an additional paid-in-capital (APIC) pool which represents the excess tax benefits related to share-based compensation that are available to absorb future tax deficiencies. If the amount of future tax deficiencies is greater than the available APIC pool, the Company records the excess as income tax expense in its consolidated statements of income. For fiscal 2016 and fiscal 2015, the Company had a sufficient APIC pool to cover any tax deficiencies recorded and as a result, these deficiencies did not affect its results of operations. At September 30, 2016, the Company has $1.1 million of net operating loss carry forwards for which a benefit would be recorded in APIC when realized.

Earnings of the Company’s foreign subsidiaries are generally subject to U.S. taxation upon repatriation to the U.S. and the Company’s tax provision reflects the related incremental U.S. tax except for certain foreign subsidiaries whose unremitted earnings are considered to be indefinitely reinvested. No deferred tax liability has been recognized with regard to the remittance of such earnings after MSKK and Sonic Foundry International BV acquisitions were completed. Because of the availability of U.S. foreign tax credits, it is likely no U.S. tax would be due if such earnings were repatriated. At September 30, 2016, unremitted earnings of $1.4 million for foreign subsidiaries were deemed to be indefinitely reinvested.

Beginning with an acquisition in fiscal year 2002, the Company has amortized Goodwill for tax purposes over a 15 year life. Tax amortization is not applicable to the goodwill from the foreign acquisitions that took place during fiscal 2014 since the foreign goodwill is non-deductible for US federal tax purposes.

The difference between the book and tax balance of certain of the company’s goodwill creates a deferred tax liability and an annual tax expense. Because of the long term nature of the goodwill timing difference, tax planning strategies cannot be utilized with respect to the deferred tax liability. The Company’s tax rate differs from the expected tax rate each reporting period as a result of the aforementioned items. The balance of the Deferred Tax Liability was $4.6 million at September 30, 2016 and $4.3 million at September 30, 2015, respectively. The Company recorded a deferred tax liability related to the Customer Relationship intangibles value acquired as part of the purchase of Sonic Foundry International BV and Mediasite KK. The Company also recorded tax expense related to the “step-up” gain on its original equity investment in Mediasite KK. The Company has some other temporary differences related to its Mediasite KK subsidiary.

In accordance with accounting guidance for uncertainty in income taxes, the Company has concluded that a reserve for income tax contingencies is not necessary. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accruals for interest and penalties on the Company’s Condensed Consolidated Balance Sheets at September 30, 2016 or September 30, 2015 and has not recognized any interest or penalties in the Condensed Consolidated Statements of Operations for either of the twelve month periods ended September 30, 2016 or 2015.

The Company is subject to taxation in the U.S., Netherlands, Japan and various state jurisdictions. All of the Company’s tax years are subject to examination by the U.S., Dutch, Japanese and state tax authorities due to the carryforward of unutilized net operating losses.