Note 4. Income Taxes

The components of the income tax expense for the years ended December 31, 2009, 2010 and 2011 were as follows:

	2010		2011			2012
			(in thousands)
Current income tax expense:
Federal	$	14,962	$	20,790		$	22,937
State		3,492		2,288			3,430
		18,454		23,078			26,367
Deferred tax expense:
Federal		1,622		(290	)		150
State		189		(577	)		11
		1,811		(867	)		161
	$	20,265	$	22,211		$	26,528

The tax effects of principal temporary differences are as follows:

	2011			2012
	(in thousands)
Deferred tax assets:
Property and equipment	$	1,410		$	2,925
Stock option compensation expense		1,778			1,765
Allowance for doubtful accounts		1,907			4,211
Accrued vacation and severance		384			485
Restricted stock		519			863
Investment		—			41
		5,998			10,290
Deferred tax liabilities:
Income tax deductible capitalized software development costs		(9,779	)		(14,346	)
Prepaid expenses		(936	)		(822	)
		(10,715	)		(15,168	)
	$	(4,717	)	$	(4,878	)

The deferred tax amounts above have been classified on the accompanying balance sheets as of December 31, 2011 and 2012, as follows:

	2011			2012
	(in thousands)
Current assets	$	3,653		$	6,502
Non-current liabilities	$	(8,370	)	$	(11,380	)

Income tax expense differs from the amount of tax determined by applying the United States Federal income tax rates to pretax income and loss due to permanent tax differences, research and development tax credits related to capitalized software development costs, energy tax credits and the application of state apportionment laws, as follows:

	2010				2011						2012
	Amount		%		Amount			%			Amount			%
					(in thousands)
Tax expense at statutory rate	$	17,546		35.00	$	22,039			35.00		$	24,135			35.00
State taxes, net		2,392		4.77		1,112			1.77			2,241			3.25
Permanent differences		141		0.28		96			0.15			154			0.22
Other		186		0.37		(1,036	)		(1.65	)		(2	)		—
	$	20,265		40.42	$	22,211			35.27		$	26,528			38.47

Permanent differences in the table above are mainly attributable to nondeductible meals and entertainment expenses and non-deductible employer contributions to the Employee Stock Purchase Plan (“ESPP”).

Other primarily consists of research and development and energy tax credits. In 2011, the Company recorded research and development credits of $499,000 and energy credits of $664,000. The Company undertakes research and development activities in connection with its learning programs. The energy credits are in connection with solar panel and charging stations for its facility in Charles Town. In 2011, the state effective tax rate decreased based on a review of the application of state apportionment factor laws to its revenue producing activities.

The Company is subject to U.S. federal income taxes as well as income tax of multiple state jurisdictions. For federal and state tax purposes, tax years 2009-2012 remain open to examination.