INCOME TAXES

Income before income tax expense was as follows (in thousands):



	For the Years Ended March 31,
	2017		2016		2015
United States	$	14,502	$	18,319	$	13,919
Foreign	15,185		8,322		12,722
	$	29,687	$	26,641	$	26,641

The following table summarizes the provision for U.S. federal, state and foreign taxes on income (in thousands):



	For the Years Ended March 31,
	2017			2016		2015
Current:
Federal	$	728		$	5,600	$	5,370
State	352			564		552
Foreign	1,711			1,373		2,099
	2,791			7,537		8,021
Deferred:
Federal	(1,260		)	1,547		1,550
State	(161		)	321		116
Foreign	(187		)	—		—
	(1,608		)	1,868		1,666
	$	1,183		$	9,405	$	9,687

The differences between the statutory and effective federal income tax rates on income before income taxes were as follows:



	For the Years Ended March 31,
	2017		2016		2015
U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, less federal benefit	0.5		1.9		1.8
Foreign tax rate differential	(7.6	)	—		—
Bargain purchase gain	(20.9	)	—		—
Changes in tax reserves and valuation allowance	(1.9	)	0.7		0.7
Permanent book/tax differences (primarily §199 deduction)	(0.2	)	(2.4	)	(0.9	)
Other, net	(0.9	)	0.1		(0.2	)
	4.0	%	35.3	%	36.4	%

The Company has not recognized a deferred tax liability of approximately $1,477,000 for the undistributed earnings of its 100% owned foreign subsidiaries that occurred during fiscal 2017 because it currently plans to indefinitely reinvest those unremitted earnings. A deferred tax liability will be recognized if the Company can no longer demonstrate that it plans to indefinitely reinvest the undistributed earnings. As of March 31, 2017, the undistributed earnings of these subsidiaries were approximately $8,045,000. During fiscal 2016 and 2015, the Company received distributions from its foreign subsidiaries and had no intention to permanently reinvest the related earnings, therefore, the Company did not assume that the income from its foreign subsidiaries was permanently reinvested.

Income tax benefits related to the exercise of stock options and vesting of restricted stock units reduced current taxes payable by $687,000, $645,000 and $550,000 in fiscal 2017, 2016 and 2015, respectively.

Deferred taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities and available net operating loss and credit carryforwards. The following temporary differences gave rise to net deferred income tax assets (liabilities) as of March 31, 2017 and 2016 (in thousands):



	March 31,
	2017			2016
Deferred income tax assets:
Accounts receivable	$	—		$	85
Inventories	658			2,681
Accrued expenses	3,223			2,519
State net operating loss and credit carryforwards	8,579			8,547
Share-based compensation	2,455			2,358
	14,915			16,190
Valuation allowance	(8,608		)	(8,468		)
	6,307			7,722
Deferred income tax liabilities:
Intangibles	3,108			136
Property, plant and equipment	4,391			1,786
Unremitted earnings of foreign subsidiaries	2,539			2,333
Other	699			274
	10,737			4,529
Net deferred income tax (liability) asset	$	(4,430	)	$	3,193

At March 31, 2017 and 2016, the Company had potential state income tax benefits of $9,095,000 (net of federal tax of $4,897,000) and $8,991,000 (net of federal tax of $4,841,000), respectively, from state deferred tax assets and state net operating loss carryforwards that expire in various years through 2037. At March 31, 2017 and 2016, the Company provided valuation allowances of $8,608,000 and $8,468,000, respectively. The valuation allowance reflects management’s assessment of the portion of the deferred tax asset that more likely than not will not be realized through future taxable earnings or implementation of tax planning strategies.

The Company recognizes in its consolidated financial statements the impact of a tax position, if it is more likely than not that such position will be sustained on audit, based solely on the technical merits of the position. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):



	March 31,
	2017			2016
Gross unrecognized tax benefits at April 1	$	1,764		$	1,607
Additions based on tax positions related to the current year	63			157
Reductions for tax positions of prior years	(628		)	—
Gross unrecognized tax benefits at March 31	$	1,199		$	1,764

During fiscal 2017, the Company completed a state nexus study. As a result of this study, management concluded that reductions of $628,000 to the gross unrecognized tax benefits were appropriate. The adjustment covered unrecognized tax benefits that were recorded in fiscal 2006 through fiscal 2015 and were immaterial to any individual year.

The total amount of gross unrecognized tax benefits at March 31, 2017 of $1,199,000 was classified in long-term obligations in the accompanying consolidated balance sheet and the amount that would favorably affect the effective tax rate in future periods, if recognized, is $779,000. The Company does not anticipate any significant changes to the amount of gross unrecognized tax benefits in the next 12 months.

The Company recognizes potential accrued interest and/or penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of operations. Approximately $504,000 of interest and penalties are accrued at March 31, 2017, $58,000 of which was recorded during the current year.

The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. The Company has settled all income tax matters for the United States federal jurisdiction for years through fiscal 2013. State and foreign income tax returns remain open back to March 31, 2011 in major jurisdictions in which the Company operates.