9. INCOME TAXES

The provision for income taxes consists of the following:

	Year Ended December 31,
	2012		2011		2010
Current income taxes:
Federal	$	14,891,245	$	12,655,924	$	9,429,658
State		1,211,358		2,086,588		1,782,984
Total		16,102,603		14,742,512		11,212,642
Deferred income taxes:
Federal		691,961		449,566		(436,528	)
State		42,247		338,692		249,396
Total		734,208		788,258		(187,132	)
Total income tax provision	$	16,836,811	$	15,530,770	$	11,025,510

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:

	2012			2011
Deferred tax assets:
Amortization of software intangibles	$	1,493,102		$	2,494,223
Stock-based compensation		1,270,998			1,410,975
State net operating loss carryforwards		401,591			483,794
Amortization of internal use software development costs		1,231,729			1,055,733
Accrued vacation		576,187			690,095
Deferred rent		274,857			310,633
Allowance for doubtful accounts		236,494			206,452
Other		194,556			152,366
		5,679,514			6,804,271
Less: Valuation allowance		(291,249	)		(422,564	)
Total		5,388,265			6,381,707
Deferred tax liabilities:
Depreciation & capitalized internal use software and development costs		(5,410,640	)		(4,113,178	)
Nonrecurring gain on acquisition of business		(1,140,886	)		(1,186,207	)
Other		-			(83,285	)
Total		(6,551,526	)		(5,382,670	)
Net deferred tax asset (liability)	$	(1,163,261	)	$	999,037

The Company has identified certain estimated state net operating loss (“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 $0.3 million and $0.4 million at December 31, 2012 and 2011, respectively.

The Company’s net deferred tax liability at December 31, 2012 is primarily attributable to differences between book and tax depreciation on property and equipment purchased during 2012. The portion of the Company’s deferred tax liability related to the nonrecurring gain on acquisition of business for certain assets acquired through the Company’s wholly-owned subsidiary Texas NICUSA, LLC in 2009 was approximately $1.1 million and $1.2 million at December 31, 2012 and 2011, respectively.

See Note 10 for discussion of the accounting for income tax deductions relating to the 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,
	2012			2011			2010
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes		1.0			4.4			4.3
Uncertain tax positions		0.3			0.4			(0.3	)
Federal and state tax credits		-			(1.7	)		(3.1	)
Nondeductible expenses		2.5			2.0			1.4
Other		0.2			0.3			0.2
Effective federal and state income tax rate		39.0	%		40.4	%		37.5	%

The Company’s effective tax rate for 2012 was lower than the rate in 2011 due to several factors, including the effective settlement of an Internal Revenue Service (“IRS”) examination and the related decrease in the liability for uncertain tax positions, along with changes in state taxes primarily due to a change in apportionment methodology for certain states. 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 7, 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.

On January 2, 2013, the American Taxpayer Relief Act of 2012 (the “Act”) was signed into law. The Act retroactively extends the federal research and development credit under Internal Revenue Code Section 41, which previously expired at the end of 2011, through the end of 2013. In accordance with authoritative accounting guidance, the Company will recognize the impact of this legislation for 2012 in the period of enactment, the first quarter of 2013.

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, 2012, 2011 and 2010:

	2012			2011			2010
Balance at January 1	$	586,606		$	397,825		$	498,845
Additions for tax positions of prior years		262,865			247,429			185,507
Reductions for tax positions of prior years		(347,492	)		-			(153,844	)
Additions for tax positions of current years		186,596			-			-
Settlements		-			(48,218	)		-
Expiration of the statute of limitations		-			(10,430	)		(132,683	)
Balance at December 31	$	688,575		$	586,606		$	397,825

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 Company remains subject to U.S. federal examination for the tax years ended on or after December 31, 2009. 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. While the tax year ended December 31, 2009 remains open under statute, the Company effectively settled its IRS examination for the tax year ended December 31, 2009.

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, 2012, 2011 and 2010, accrued interest and penalty amounts were not material.