Income Tax

12 Months Ended

Mar. 31, 2011

10. Income Tax

During the years ended March 31, 2011, 2010, and 2009, the Company recognized federal research and development tax credits of $927, $605 and $859, respectively, and state research and development tax credits of approximately $119, $129 and $166, respectively. Due to the expiration of the Internal Revenue Service (“IRS”) statute related to research and development credits on December 31, 2009, the Company’s research and development credits claimed for the year ended March 31, 2010 represent credits for the nine-month period from April 1, 2009 through December 31, 2009. In December 2010, subsequent to the filing of the fiscal year 2010 federal income tax return, a retroactive extension was enacted to extend the research credit through December 31, 2011.

The Company also claimed the qualified production activities deduction under Section 199 of the Internal Revenue Code (“IRC”) for $8,134, $4,133, and $2,747 during the years ended March 31, 2011, 2010, and 2009, respectively. The research and development credits and the qualified production activities income deduction calculated by the Company involve certain assumptions and judgments regarding qualification of expenses under the relevant tax code provisions.

The provision (benefit) for income taxes consists of the following components:


	Fiscal Year Ended March 31,
	2011			2010			2009
Current:
Federal taxes	$	28,979		$	23,750		$	18,818
State taxes		6,501			5,043			4,992


Total current taxes		35,480			28,793			23,810


Deferred:
Federal taxes	$	(2,168	)	$	(768	)	$	2,802
State taxes		(502	)		(186	)		596


Total deferred taxes		(2,670	)		(954	)		3,398


Provision for income taxes	$	32,810		$	27,839		$	27,208

The provision for income taxes differs from the amount computed at the federal statutory rate as follows:


	Fiscal Year Ended March 31,
	2011			2010			2009
Current:
Federal income tax statutory rate		35.0	%		35.0	%		35.0	%

Increase (decrease) resulting from:
State income taxes, net of Federal benefit		4.1			4.3			5.2
Research and development tax credits		(1.0	)		(0.9	)		(1.3	)
Qualified production activities income deduction		(3.0	)		(2.0	)		(1.4	)
Other		(0.3	)		0.1			(0.4	)


Effective income tax rate		34.8	%		36.5	%		37.1	%

The net deferred tax assets and liabilities in the accompanying consolidated balance sheets consist of the following:


	March 31,			March 31,
	2011			2010
Deferred tax assets:
Deferred revenue and allowance for doubtful accounts	$	8,646		$	5,577
Inventory valuation		122			115
Purchased in-process research and development		—			601
Accrued compensation and benefits		3,180			2,325
Deferred compensation		1,078			783
State income taxes		452			640
Compensatory stock option expense		1,759			252
Other		1,071			125


Total deferred tax assets		16,308			10,418


Deferred tax liabilities:
Accelerated depreciation	$	(2,181	)	$	(1,529	)
Capitalized software		(5,913	)		(4,806	)
Intangibles assets		(6,132	)		(6,938	)
Prepaid expense		(3,069	)		(2,326	)


Total deferred tax liabilities		(17,295	)		(15,599	)


Deferred tax assets (liabilities), net	$	(987	)	$	(5,181	)

The deferred tax assets and liabilities have been shown net in the accompanying consolidated balance sheets based on the long-term or short-term nature of the items that give rise to the deferred amount. No valuation allowance has been made against the deferred tax assets as management expects to receive the full benefit of the assets recorded.

Uncertain tax positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits, which is recorded in income taxes payable in the Company’s consolidated balance sheet, is as follows:


Balance as of March 31, 2009	$	67
Additions for prior year tax positions		598
Reductions for prior year tax positions		(9	)


Balance as of March 31, 2010	$	656
Additions for prior year tax positions		34
Reductions for prior year tax positions		(18	)


Balance as of March 31, 2011	$	672

The total amount of unrecognized tax benefit that, if recognized, would decrease the income tax provision is $672.

The Company’s continuing practice is to recognize estimated interest and/or penalties related to income tax matters in general and administrative expenses. The Company had approximately $83 and $59 of accrued interest related to income tax matters at March 31, 2011 and 2010, respectively. No penalties were accrued.

The Company’s income tax returns filed for tax years 2007 through 2009 and 2006 through 2009 are subject to examination by the federal and state taxing authorities, respectively. The Company is currently not under examination by the IRS and is under examination by one state income tax authority and pending examination by three additional state agencies. The Company does not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statute of limitations within the next twelve months.