INCOME TAXES

Our total income tax expense and the effective tax rate for our income before income taxes were as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Income before income taxes	$	3,784		$	4,478		$	11,312		$	10,103
Total income tax expense	701			1,135			787			2,571
Effective tax rate	18.5		%	25.3		%	7.0		%	25.4		%

We are subject to income taxes in the U.S. federal jurisdiction, and various foreign, state and local jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.

During interim periods, the Company generally utilizes the estimated annual effective tax rate method which involves the use of forecasted information. Under this method, the provision is calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. The Company’s effective tax rate decreased to 18.5% for the three months ended September 30, 2017, compared to 25.3% for the three months ended September 30, 2016. The Company's effective tax rate decreased to 7% for the nine months ended September 30, 2017, compared to 25.4% for the nine months ended September 30, 2016. The decreases in rates for both periods was primarily attributable to an increase in stock-based compensation excess tax benefits, which are now recorded as income tax expense or benefit in accordance with our policy.

As of September 30, 2017, the Company assessed whether the reduction of taxable income due to large benefits created by stock option exercises and vesting of restricted stock and the excess tax benefits would cause a larger portion of our DTAs to likely expire unrealized. The Company assessed its ability to realize the DTAs by evaluating all available positive and negative evidence, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax losses, (3) estimates of future taxable income, and (4) the length of Net Operating Loss ("NOL") carryforward periods. Additionally, the Company considered the length of NOL carryforward periods and an objectively verifiable estimate of future income based on operating results from the Company’s recent history, as well as an estimate of future income that incorporates the Company's forecasted operating results for fiscal 2017. Due to the significant amount of additional stock based compensation excess tax deduction generated, the Company determined that the negative evidence outweighed the positive evidence and that the threshold of more-likely-than-not was not met and that sufficient taxable income may not be generated to realize all of the DTAs as of September 30, 2017. As such, an additional $1.3 million and $3.1 million was recorded to the current partial valuation allowance against the Company’s DTAs during the three and nine months ended September 30, 2017, respectively, which was partially offset by other adjustments to the valuation allowance. The Company will continue to closely monitor the need for an additional valuation allowance against its DTAs in each subsequent reporting period which can be impacted by actual operating results compared to the Company's forecast.

There were $2 thousand cash payments for income taxes for the three months ended September 30, 2017 and there were $225 thousand cash payments for income taxes for the three month period ended September 30, 2016.

There were $146 thousand cash payments for income taxes for the nine months ended September 30, 2017 and there were $288 thousand cash paid for income taxes for the nine month period ended September 30, 2016.