Income Taxes

We file a consolidated federal income tax return. Taxes based on income for the years ended June 30 have been provided as follows:



	2017		2016			2015
Currently payable:
Federal	$	51,524	$	57,116		$	47,601
State and local	6,319		6,502			5,229
Total current provision	57,843		63,618			52,830
Deferred federal, state and local provision (benefit)	2,359		(749		)	36
Total taxes based on income	$	60,202	$	62,869		$	52,866

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



	2017		2016		2015
Tax benefits recorded directly to common stock	$	1,123	$	1,417	$	563

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:



	2017		2016		2015
Statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes	2.4		2.3		2.2
ESOP dividend deduction	(0.1	)	(0.4	)	(0.2	)
Domestic manufacturing deduction for qualified income	(2.8	)	(3.0	)	(3.0	)
Other	(0.2	)	0.2		0.2
Effective rate	34.3	%	34.1	%	34.2	%

Our net deferred tax liability for all periods presented in the Consolidated Balance Sheets has been classified as noncurrent. 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:



	2017			2016
Deferred tax assets:
Employee medical and other benefits	$	10,349		$	12,533
Receivable and other allowances	5,314			5,626
Inventories	1,041			1,034
Other accrued liabilities	1,905			1,740
Total deferred tax assets	18,609			20,933
Deferred tax liabilities:
Property, plant and equipment	(22,188		)	(21,573		)
Intangible assets	(14,070		)	(14,555		)
Goodwill	(7,092		)	(6,117		)
Other	(466		)	(121		)
Total deferred tax liabilities	(43,816		)	(42,366		)
Net deferred tax liability	$	(25,207	)	$	(21,433	)

Prepaid federal income taxes of $6.1 million and $4.3 million were included in Other Current Assets at June 30, 2017 and 2016, respectively. Prepaid state and local income taxes of $0.9 million and $0.5 million were included in Other Current Assets at June 30, 2017 and 2016, respectively.

Net cash payments for income taxes for each of the years ended June 30 were as follows:



	2017		2016		2015
Net cash payments for income taxes	$	59,008	$	62,901	$	43,027

The gross tax contingency reserve at June 30, 2017 was $1.8 million and consisted of estimated tax liabilities of $1.1 million and interest and penalties of $0.7 million. The unrecognized tax benefits recorded as the gross tax contingency reserve noted in the following table for June 30, 2017 and 2016 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):



	2017			2016
Balance, beginning of year	$	1,599		$	1,487
Tax positions related to the current year:
Additions	82			54
Reductions	—			—
Tax positions related to prior years:
Additions	153			121
Reductions	(26		)	(63		)
Settlements	—			—
Balance, end of year	$	1,808		$	1,599

We included $0.6 million of the gross tax contingency reserve at June 30, 2017 in Accrued Liabilities as these amounts are expected to be resolved within the next 12 months. The remaining liability of $1.2 million was included in Other Noncurrent 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:



	2017		2016
Expense recognized for net tax-related interest and penalties	$	112	$	92

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



	2017		2016
Accrued interest and penalties included in the gross tax contingency reserve	$	683	$	571

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 2014.

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 2017 was 9%. In accordance with FASB guidance, this deduction is treated as a special deduction, as opposed to a tax rate reduction and is properly reflected in the effective tax rate table.