10. INCOME TAXES

The provision for income taxes consists of the following:

	Year Ended December 31,
	2011		2010			2009
Current income taxes:
Federal	$	12,655,924	$	9,429,658		$	1,999,056
State		2,086,588		1,782,984			1,069,565
Total		14,742,512		11,212,642			3,068,621
Deferred income taxes:
Federal		449,566		(436,528	)		4,213,106
State		338,692		249,396			844,829
Total		788,258		(187,132	)		5,057,935
Total income tax provision	$	15,530,770	$	11,025,510		$	8,126,556

Deferred income taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. Significant components of the Company's deferred tax assets and liabilities were as follows at December 31:

	2011			2010
Deferred tax assets:
Amortization of software intangibles	$	2,494,223		$	3,300,881
Stock-based compensation		1,410,975			1,278,405
State net operating loss carryforwards		483,794			894,817
Amortization of internal use software development costs		1,055,733			829,777
Accrued vacation		690,095			619,728
Deferred rent		310,633			274,042
Allowance for doubtful accounts		206,452			213,189
Other		152,366			164,138
		6,804,271			7,574,977
Less: Valuation allowance		(422,564	)		(585,926	)
Total		6,381,707			6,989,051
Deferred tax liabilities:
Depreciation & capitalized internal use
software development costs		(4,113,178	)		(2,464,981	)
Nonrecurring gain on acquisition of business		(1,186,207	)		(1,173,816	)
Other		(83,285	)		(180,669	)
Total		(5,382,670	)		(3,819,466	)
Net deferred tax asset	$	999,037		$	3,169,585

For federal income tax purposes, the Company used all available net operating loss (“NOL”) carryforwards as of December 31, 2009.

The Company has identified certain estimated state NOL carryforwards that it might be unable to use. Based on a review of applicable state tax statutes, the Company concluded that there is substantial doubt it would be able to realize the full amount of certain estimated NOL carryforwards in states where the Company cannot file a consolidated income tax return or where future taxable income will not be sufficient to utilize the state NOL before it expires. As a result, the Company recorded a deferred tax asset valuation allowance totaling $0.4 million and $0.6 million at December 31, 2011 and 2010, respectively.

The portion of the Company’s deferred tax liability related to the nonrecurring gain on acquisition of the Acquired Texas Contracts in 2009 was approximately $1.2 million at December 31, 2011 and 2010, respectively. See Note 4 for further information.

See Note 11 for discussion of the accounting for income tax deductions relating to the exercise of non-qualified stock options and vesting of restricted stock.

The following table reconciles the statutory federal income tax rate and the effective income tax rate indicated by the consolidated statements of income:

	Year Ended December 31,
	2011			2010			2009
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes		4.4			4.3			5.7
Book gain on acquisition of business		-			-			(4.5	)
Uncertain tax positions		0.4			(0.3	)		0.1
Federal and state tax credits		(1.7	)		(3.1	)		-
Nondeductible expenses		2.0			1.4			0.8
Other		0.3			0.2			(0.3	)
Effective federal and state income tax rate		40.4	%		37.5	%		36.8	%

The Company’s effective tax rate for 2011 and 2010 reflects the effect of a favorable benefit related to a federal tax credit totaling approximately $0.7 million and $0.9 million, respectively.

As further discussed in Note 8, the Company recorded $0.5 million of expense in 2010 in anticipation of paying a civil penalty in connection with the Company’s ultimate settlement with the SEC on January 12, 2011. The Company did not record a tax benefit on this amount because the penalty is not deductible from an income tax standpoint.

The following table provides a reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits (included in other long-term liabilities in the consolidated balance sheets) for the years ended December 31, 2011, 2010 and 2009:

	2011			2010			2009
Balance at January 1	$	397,825		$	498,845		$	467,865
Additions for tax positions of prior years		247,429			185,507			166,332
Reductions for tax positions of prior years		-			(153,844	)		-
Settlements		(48,218	)		-			-
Expiration of the statute of limitations		(10,430	)		(132,683	)		(135,352	)
Balance at December 31	$	586,606		$	397,825		$	498,845

It is reasonably possible that events will occur during the next 12 months that would cause the total amount of unrecognized tax benefits to increase or decrease. However, the Company does not expect such increases or decreases to be material to its financial condition or results of operations.

The Company, along with its wholly owned subsidiaries, files a consolidated U.S. federal income tax return and separate income tax returns in many states throughout the U.S. The Internal Revenue Service (“IRS”) is currently examining the Company’s 2009 consolidated U.S. federal income tax return. The Company remains subject to U.S. federal examination for the tax years ended on or after December 31, 2008. Additionally, any net operating losses that were generated in prior years and utilized through 2009 may also be subject to examination by the IRS. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return.

The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of income tax expense in the consolidated statements of income. At December 31, 2011 and 2010, accrued interest and penalty amounts were not material.