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,
	2019			2018			2017
U.S. Federal statutory taxes	$	39,838		$	37,141		$	49,671
State and local taxes, net of U.S. Federal benefit		8,412			7,716			5,110
Permanent items		1,266			470			576
Excess tax benefits from vesting or settlement of stock compensation awards		(3,540	)		(2,368	)		(1,454	)
Domestic production activities deduction		—			—			(4,376	)
Federal credits		(654	)		(662	)		(534	)
Other		(358	)		(8	)		(2,202	)

Total income tax provision	$	44,964		$	42,289		$	46,791

Deferred tax assets and liabilities consist of the following (in thousands):


	As of December 31,
	2019			2018
Deferred tax assets:
Net operating losses	$	88		$	79
Residential product warranty reserve		6,486			7,804
Stock-based compensation		1,055			1,725
Accruals not currently deductible and other		2,245			3,928
Inventories		5,780			4,682
Operat ing le ase liability		10,618			—
State tax credit carryforwards		3,461			3,400

Gross deferred tax assets, before valuation allowance		29,733			21,618
Valuation allowance		(2,988	)		(3,015	)

Gross deferred tax assets, after valuation allowance		26,745			18,603

Deferred tax liabilities:
Depreciation		(17,267	)		(13,893	)
Operating lease right-of-use asset		(10,162	)		—
Goodwill amortization		(4,782	)		(3,774	)
Inventories and other		(4,365	)		(3,061	)

Gross deferred tax liabilities		(36,576	)		(20,728	)

Net deferred tax liability	$	(9,831	)	$	(2,125	)

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, 2019, the Company had a valuation allowance of $3.0 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.

The Company realized $

3.5

million, $

2.4

million and $

1.5

million of excess tax benefits during 2019, 2018 and 2017, respectively, related to share-based compensation awards.

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, 2019, the Company has identified

uncertain tax position and, accordingly, has

t 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, 2019 Federal tax years 2016 through 2019 remain subject to examination. The Company’s returns filed with the state of Oregon for the tax years 2015 through 2017 are currently under examination. No material adjustments are

expected as a result of the audit. 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.