3. Income Taxes

The Company is subject to future federal, state, and foreign income taxes and has recorded net deferred tax assets on the Consolidated Balance Sheets at December 31, 2017 and 2016. Deferred tax assets and liabilities are determined based on the difference between the financial accounting and tax bases of assets and liabilities. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows (in thousands):

	December 31,
	2017			2016
Deferred tax assets:
Accounts receivable	$	618		$	1,034
Accrued liabilities		2,571			5,747
Equity-based compensation		3,732			5,535
Capitalized costs		595			861
Accrued sales taxes		257			439
Deferred rent		336			939
State tax credits		5,870			4,650
Foreign subsidiary net operating losses		278			212
Valuation allowance		(4,084	)		(4,031	)
Other		297			805
		10,470			16,191
Deferred tax liabilities:
Intangible assets		7,480			11,056
Depreciation		1,182			2,321
		8,662			13,377
Net deferred tax assets	$	1,808		$	2,814

The components of income from domestic and foreign operations before income tax expense for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

	Year Ended December 31,
	2017		2016		2015
Domestic	$	177,314	$	186,234	$	152,040
Foreign		7,519		9,873		10,801
Total	$	184,833	$	196,107	$	162,841

The components of the income tax provision for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

	Year Ended December 31,
	2017			2016			2015
Current:
Federal	$	53,998		$	56,053		$	47,195
State		6,595			8,204			6,308
Foreign		6,185			5,819			4,331
		66,778			70,076			57,834
Deferred:
Federal		1,590			2,086			1,252
State		35			(268	)		(300	)
Foreign		(51	)		(21	)		580
		1,574			1,797			1,532
Total	$	68,352		$	71,873		$	59,366

The Company did not have the income tax benefits related to the exercise of stock options for the year ended December 31, 2017 as the remaining outstanding stock options were exercised in 2016. The income tax benefits related to the exercise of stock options were approximately $0.1 million and $2.7 million for the years ended December 31, 2016 and 2015, respectively.

As a result of losses in foreign locations, the Company has net operating loss carry-forwards (“NOLs”) of approximately $1.2 million available to offset future income. Approximately $1.0 million of the NOLs expire in 2018 to 2026 and the remainder does not expire. The Company has established a valuation allowance for substantially all of these NOLs because the ability to utilize them is not more likely than not.

The Company has tax credit carry-forwards of approximately $7.4 million available to offset future state tax. These tax credit carry-forwards expire in 2018 to 2027. These credits represent a deferred tax asset of $5.9 million after consideration of the federal benefit of state tax deductions. A valuation allowance of $3.2 million has been established for these credits because the ability to use them is not more likely than not.

At December 31, 2017 the Company had approximately $49.9 million of undistributed earnings and profits. The Company recorded a provisional estimated transition tax of about $3.3 million in the fourth quarter as a result of the Tax Cuts and Jobs Act, enacted in December 2017. The undistributed earnings and profits are considered previously taxed income and would not be subject to U.S. income taxes upon repatriation of those earnings, in the form of dividends. The undistributed earnings and profits are considered to be permanently reinvested, accordingly no provision for local withholdings taxes have been provided, however, upon repatriation of those earnings, in the form of dividends, the Company could be subject to additional local withholding taxes.

The following is a summary of the items that cause recorded income taxes to differ from taxes computed using the statutory federal income tax rate for the years ended December 31, 2017, 2016 and 2015:

	Year Ended December 31,
	2017			2016			2015

Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Effect of:
State income tax, net of federal benefit		2.3			2.7			2.5
State credit carryforwards		(0.1	)		(0.2	)		(0.3	)
U.S. federal R&D tax credit		(0.8	)		(0.7	)		(0.7	)
Tax Reform		1.5			-			-
Excess benefit of equity compensation		(1.0	)		-			-
Foreign operations		(0.1	)		(0.2	)		(0.4	)
Tax contingencies		-			0.6			0.5
Other permanent differences		0.3			(0.5	)		(0.1	)
Change in valuation allowance		(0.1	)		(0.1	)		-
Income taxes		37.0	%		36.6	%		36.5	%

On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act ('the Act'), resulting in significant modifications to existing law. The Company follows the guidance in SEC Staff Accounting Bulletin 118 ('SAB 118'), which provides additional clarification regarding the application of ASC Topic 740 in situation where the Company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act for the reporting period in which the Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Act's enactment date and ending when the Company has obtained, prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstances should the measurement period extend beyond one year from the enactment date.

In December 2017, the Company recorded a provisional estimate of $3.3 million for the one-time deemed repatriation transition tax on unrepatriated foreign earnings. The provisional amount is based on information currently available, including estimated tax earnings and profits from foreign investments. The Company continues to gather and analyze information, including historical adjustments to earnings and profits of foreign subsidiaries, in order to complete the accounting for the effects of the estimated transition tax. The Company also recorded a provisional write-down to deferred tax assets of $0.7 million related to changes in section 162(m), Internal Revenue Code of 1986, regarding deductions for excessive employee compensation. The Company continues to gather and analyze information, including the definition of an employee contract for stock grants not vested as of the enactment date of the Act. It is the intention of the Company to complete the necessary analysis within the measurement period.

The Act provides for the global intangible low-taxed income (‘GILTI’) provision which requires the Company in its U.S. income tax return, to include foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The FASB Staff provided additional guidance to address the accounting for the effects of the provisions related to the taxation of GILTI, noting that companies should make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to include the tax expense in the year it is incurred. The Company has not completed its analysis of the effects of the GILTI provisions and will further consider the accounting policy election within the measurement period.

The Company continues to gather and analyze information related to the state and local impact of tax reform, including the state and local tax impact of the transition tax. The Company intends to complete the necessary analysis within the measurement period.

Accounting for the remaining income tax effects of the Act which impact our tax provision has been completed as of the current year and included in the Company's financial statements as of December 31, 2017. As a result of the Act, the Company recorded a one-time tax benefit of $1.2 million, from the remeasurement of deferred tax assets and liabilities from 35% to 21%.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended December 31, 2017, 2016 and 2015 (in thousands):

	December 31,
	2017			2016			2015

Unrecognized tax benefits at January 1,	$	(6,938	)	$	(5,789	)	$	(4,455	)
Gross amount of increases in unrecognized tax benefits as a result of tax positions taken during a prior period		(789	)		(756	)		(1,687	)
Gross amount of decreases in unrecognized tax benefits as a result of tax positions taken during a prior period		145			270			292
Gross amount of increases in unrecognized tax benefits as a result of tax positions taken during the current period		-			(791	)		-
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations		163			128			61
Unrecognized tax benefits at December 31,	$	(7,419	)	$	(6,938	)	$	(5,789	)

The Company’s unrecognized tax benefits totaled $7.4 million and $6.9 million as of December 31, 2017 and 2016, respectively. Included in these amounts are unrecognized tax benefits totaling $5.6 million and $5.1 million as of December 31, 2017 and 2016, respectively, which, if recognized, would affect the effective tax rate.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within its global operations in income tax expense. For the years ended December 31, 2017, 2016 and 2015, the Company recognized $0.3 million, $0.3 million, and $0.2 million, respectively, of expense for the potential payment of interest and penalties. Accrued interest and penalties were $1.7 million and $1.5 million for the years ended December 31, 2017 and 2016. The Company conducts business globally and, as a result, files income tax returns in the United State federal jurisdiction and in many state and foreign jurisdictions. The Company is generally no longer subject to U.S. federal, state, and local, or non-US income tax examinations for the years before 2012. Due to the expiration of statutes of limitations in multiple jurisdictions globally during 2018, the Company anticipates it is reasonably possible that unrecognized tax benefits may decrease by $0.9 million.