Income Taxes

We and our domestic subsidiaries file a consolidated Federal income tax return. Taxes based on income from continuing operations for the years ended June 30 have been provided as follows:



	2014			2013		2012
Currently payable:
Federal	$	48,718		$	45,350	$	39,720
State and local	4,526			3,475		4,116
Total current provision	53,244			48,825		43,836
Deferred Federal, state and local (benefit) provision	(951		)	1,133		5,031
Total taxes based on income	$	52,293		$	49,958	$	48,867

Certain tax benefits recorded directly to common stock for each of the years ending June 30 were as follows:



	2014		2013		2012
Tax benefits recorded directly to common stock	$	1,020	$	794	$	301

For the years ended June 30, our effective tax rate varied from the statutory Federal income tax rate as a result of the following factors:



	2014		2013		2012
Statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes	2.0		1.5		2.1
ESOP dividend deduction	(0.2	)	(0.8	)	(0.2	)
Domestic manufacturing deduction	(3.0	)	(3.1	)	(2.6	)
Other	0.3		(0.1	)	0.3
Effective rate	34.1	%	32.5	%	34.6	%

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30 were comprised of:



	2014			2013
Deferred tax assets:
Inventories	$	720		$	2,597
Employee medical and other benefits	10,149			11,161
Receivable and other allowances	4,410			4,375
Other accrued liabilities	2,895			3,133
Total deferred tax assets	18,174			21,266
Deferred tax liabilities:
Property, plant and equipment	(21,307		)	(21,607		)
Goodwill	(4,212		)	(3,804		)
Other	(79		)	(425		)
Total deferred tax liabilities	(25,598		)	(25,836		)
Net deferred tax liability	$	(7,424	)	$	(4,570	)

Net current deferred tax assets and prepaid Federal, state and local income taxes were included in Deferred Income Taxes and Other Current Assets on the Consolidated Balance Sheet. The related balances at June 30 were as follows:



	2014		2013
Net current deferred tax assets	$	11,329	$	13,704
Prepaid Federal, state and local income taxes	$	9,688	$	7,549

Cash payments for income taxes for each of the years ending June 30 were as follows:



	2014		2013		2012
Cash payments for income taxes	$	37,277	$	56,992	$	38,726

The gross tax contingency reserve at June 30, 2014 was approximately $1.0 million. The unrecognized tax benefits recorded as the gross tax contingency reserve noted in the following table for June 30, 2014 and 2013 would affect our effective tax rate, if recognized.

The following table sets forth changes in our total gross tax contingency reserve (including interest and penalties):



	2014			2013
Balance, beginning of year	$	912		$	1,939
Tax positions related to the current year:
Additions	66			66
Reductions	—			—
Tax positions related to prior years:
Additions	39			86
Reductions	(54		)	(1,021		)
Settlements	—			(158		)
Balance, end of year	$	963		$	912

We have not classified any of the gross tax contingency reserve at June 30, 2014 as current liabilities as none of these amounts are expected to be resolved within the next 12 months. The entire liability of approximately $1.0 million was included in long-term liabilities. We expect that the amount of these liabilities will change within the next 12 months; however, we do not expect the change to have a significant effect on our financial position or results of operations.

We recognize interest and penalties related to these tax liabilities in income tax expense. For each of the years ended June 30, we recognized the change in the accrual for net tax-related interest and penalties as follows:



	2014		2013
Expense (benefit) recognized for net tax-related interest and penalties	$	9	$	(539	)

We had accrued interest and penalties at June 30 as follows:



	2014		2013
Accrued interest and penalties included in the gross tax contingency reserve	$	392	$	383

We file income tax returns in the U.S. and various state and local jurisdictions. With limited exceptions, we are no longer subject to examination of U.S. Federal or state and local income taxes for years prior to 2011.

The American Jobs Creation Act provided a tax deduction calculated as a percentage of qualified income from manufacturing in the United States. The deduction percentage for 2014 was 9%. In accordance with FASB guidance, this deduction is treated as a special deduction, as opposed to a tax rate reduction.