12.

INCOME TAXES

Income tax provision (benefit) for the years ended December 31, 2016, 2015 and 2014 consists of the following (in thousands):


	Year Ended December 31,
	2016		2015		2014
Current income tax provision:
Federal	$	26,752	$	25,105	$	18,722
State		2,798		2,560		3,131

		29,550		27,665		21,853

Deferred income tax provision:
Federal		5,217		987		3,118
State		216		37		456

		5,433		1,024		3,574

Total income tax provision	$	34,983	$	28,689	$	25,427

The income tax provision differs from the amount of income tax determined by applying the U.S. Federal statutory rate to income before taxes as a result of the following (in thousands):


	Year Ended December 31,
	2016			2015			2014
U.S. Federal statutory taxes	$	35,990		$	26,876		$	23,432
State and local taxes, net of U.S. Federal benefit		3,747			2,806			2,856
Permanent items		396			1,308			249
Excess tax benefits from vesting or settlement of stock compensation awards		(1,749	)		—			—
Domestic production activities deduction		(2,740	)		(2,262	)		(1,117	)
Federal credits		(488	)		(328	)		(214	)
Other		(173	)		289			221

Total income tax provision	$	34,983		$	28,689		$	25,427

Deferred tax assets and liabilities as of December 31, 2016 and 2015 consist of the following (in thousands):


	As of December 31,
	2016			2015
Deferred tax assets:
Net operating losses	$	93		$	138
Warranty reserve		14,510			12,904
Stock-based compensation		2,186			1,554
Accruals not currently deductible and other		2,261			6,195
Inventories		5,785			4,406
State tax credit carryforwards		4,020			4,350

Gross deferred tax assets, before valuation allowance		28,855			29,547
Valuation allowance		(4,061	)		(4,582	)

Gross deferred tax assets, after valuation allowance		24,794			24,965

Deferred tax liabilities:
Depreciation and other		(25,688	)		(20,426	)

Gross deferred tax liabilities		(25,688	)		(20,426	)

Net deferred tax (liability) asset	$	(894	)	$	4,539

The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. In accordance with accounting standards, the Company assesses the likelihood that its deferred tax assets will be realized. Deferred tax assets are reduced by a valuation allowance when, after considering all available positive and negative evidence, it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.

As of December 31, 2016, the Company had a valuation allowance of $4.1 million against deferred tax assets it estimates will not be realized. The Company will analyze its position in subsequent reporting periods, considering all available positive and negative evidence, in determining the expected realization of its deferred tax assets.

In 2016, the Company adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” and, accordingly, recognizes excess tax benefits for stock-based awards within income tax expense when realized. The Company applied the guidance in the new standard prospectively as of January 1, 2016. Excess tax benefits for the years ended December 31, 2015 and 2014 are recorded in additional paid-in-capital. The Company realized $1.7 million of excess tax benefits during 2016.

The Company recognizes interest and penalties related to tax matters as a component of “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income. As of December 31, 2016, the Company has identified no uncertain tax position and, accordingly, has not recorded any unrecognized tax benefits or associated interest and penalties.

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities, and the Company has accrued a liability when it believes that it is not more likely than not that it will realize the benefits of tax positions that it has taken or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with accounting standards. As of December 31, 2016, Federal tax years 2013 through 2016 remain subject to examination. The Company believes that adequate provisions have been made for all tax returns subject to examination. Sales made to foreign distributors are not taxable in any foreign jurisdictions as the Company does not have a taxable presence.