5. Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

The items comprising Provision for Income Taxes are as follows (in thousands):

	Year ended December 31,
	2017			2016			2015
Current        —         Federal	$	6,244		$	10,706		$	11,848
—         State		877			1,226			1,528
		7,121			11,932			13,376
Deferred       —         Federal		(1,542	)		(92	)		(1,364	)
—         State		168			(155	)		(67	)
		(1,374	)		(247	)		(1,431	)
Provision for Income Taxes	$	5,747		$	11,685		$	11,945

Temporary differences and carryforwards which have given rise to deferred tax liabilities as of December 31, 2017 and 2016 are as follows (in thousands):

	2017			2016
Deferred tax liabilities (assets):
Property, plant and equipment	$	6,787		$	9,550
Patents and goodwill		1,740			2,833
Benefit plans		(854	)		(1,819	)
Inventories		(282	)		(519	)
Capital loss carryover		(572	)		(954	)
Other		(116	)		(338	)
		6,703			8,753
Plus: Valuation allowance		609			--
Total deferred tax liabilities	$	7,312		$	8,753

Total income tax expense differs from the amount that would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below (in thousands):

	Year ended December 31,
	2017			2016			2015
Income tax expense at the statutory federal income tax rate	$	14,819		$	13,743		$	14,304
Increase (decrease) resulting from:
State income taxes		662			730			882
Section 199 manufacturing deduction		(630	)		(1,165	)		(1,383	)
R&D tax credits		(983	)		(1,070	)		(2,254	)
Excess tax benefit from stock compensation		(5,782	)		(687	)		--
Impact from tax law rate change		(4,053	)		--			--
Change in valuation allowance		609			--			--
Uncertain tax positions		865			(120	)		(9	)
Other, net		240			254			405
Provision for Income Taxes	$	5,747		$	11,685		$	11,945

The Tax Cuts and Jobs Act, of 2017, enacted in December 2017, reduced the corporate federal income tax rate in the United States from 35% to 21% effective on January 1. 2018. This rate reduction reduced our net deferred tax liability, including adjustments to our net state deferred tax liabilities, by $4.1 million as of December 31, 2017. Based upon this tax law enactment, we recorded a corresponding benefit in our income tax provision of $4.1 million for the three months and year ended December 31, 2017. Also, in the fourth quarter of 2017 we recorded a deferred tax valuation allowance of $609,000 primarily related to deferred tax assets for a $2.7 million capital loss carryover deduction which may not be realized by its expiration date in 2021. This charge partially offset the benefit recorded in our income tax provision as a result of the Tax Cuts and Jobs Act. We will continue to evaluate the tax reform impacts noting that the ultimate impact of tax reform may differ from the amounts recorded due to changes in our interpretations and assumptions, as well as additional regulatory guidance that may be issued.

An excess tax benefit is the realized tax benefit related to the amount of deductible compensation cost reported on an employer’s tax return for equity instruments in excess of the compensation cost for those instruments recognized for financial reporting purposes. The Company adopted ASU-2016-09 (see Note 1) effective January 1, 2016 eliminating the requirement for excess tax benefits to be recorded as additional paid-in capital when realized. An excess tax benefit in the amount of $156,000 was recognized as additional paid-in capital during 2015, resulting from the vesting of restricted stock and restricted stock units. With the adoption of ASU 2016-09, excess tax benefits of $5,782,000 and $687,000 were recognized as a component of income tax expense in 2017 and 2016, respectively.

We recorded tax credits for our R&D expenditures totaling $2.3 million in 2015. This amount included an adjustment for recalculation of our R&D tax credits from prior years resulting from a regulation issued by the Treasury Department which favorably impacted the benefits provided to the Company under these rules.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits as required by ASC 740 is as follows (in thousands):

Gross unrecognized tax benefits at January 1, 2015	$	129
Increase in tax positions for prior years		122
Increase in tax positions for current year		0
Lapse in statutes of limitation		(131	)
Gross unrecognized tax benefits at December 31, 2015	$	120
Decrease in tax positions for prior years		(120	)
Increase in tax positions for current year		0
Lapse in statutes of limitation		0
Gross unrecognized tax benefits at December 31, 2016	$	0
Increase in tax positions for prior years		865
Increase in tax positions for current year		0
Lapse in statutes of limitation		0
Gross unrecognized tax benefits at December 31, 2017	$	865

As of December 31, 2017 all of the unrecognized tax benefits, which were comprised of uncertain tax positions, would impact the effective tax rate if recognized. Unrecognized tax benefits that are affected by statutes of limitation that expire within the next 12 months are immaterial.

We are subject to United States federal income tax as well as to income tax of multiple state jurisdictions.  We have concluded all United States federal income tax matters for years through 2013. An audit of our federal income tax returns for 2011, 2012 and 2013 was completed in 2016 with no changes. All material state and local income tax matters have been concluded for years through 2013. 

We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The liability for unrecognized tax benefits included accrued interest of $1,000 at December 31, 2017. Tax expense for the year ended December 31, 2017 included a net interest charge of $1,000. There were no tax expenses or tax benefits for interest and penalties in 2016. A net interest benefit of $9,000 was included in 2015.