Note 8 — Income Taxes

The provision for income taxes from continuing operations consists of:

	Year ended December 31, (in thousands)
	2016			2015

Current income tax:
Federal	$	61		$	221
State		167			141
Foreign		211			267
		439			629
Deferred income tax:
Federal		768			816
State		(60	)		55
		708			871
Provision for income taxes	$	1,147		$	1,500

The deferred tax benefit related to discontinued operations was $0.4 million in fiscal year 2016 and $3.2 million recorded in fiscal year 2015.

Deferred tax liabilities (assets) are comprised of the following at:

	December 31, (in thousands)
	2016			2015
Deferred tax liabilities:
Software development costs	$	2,223		$	1,841
Acquired intangible assets		1,731			2,088
Gross deferred tax liabilities		3,954			3,929

Allowances for bad debts and inventory		(4,505	)		(4,804	)
Capitalized inventory costs		(104	)		(75	)
Intangible assets		(1,388	)		(1,747	)
Employee benefit accruals		(2,089	)		(2,050	)
Federal net operating loss carryforward		(5,820	)		(6,215	)
State net operating loss carryforward		(1,085	)		(1,111	)
Tax credit carryforwards		(6,888	)		(8,760	)
Foreign currency		(33	)		(33	)
Other		(1,333	)		(334	)
Gross deferred tax assets		(23,245	)		(25,129	)

Less valuation allowance		1,874			3,421

Net deferred tax assets	$	(17,417	)	$	(17,779	)

The Company has Federal tax credit carryforwards of $6.7 million that expire in various tax years from 2017 to 2036. The Company has a Federal operating loss carryforward of $18.8 million that expires in various tax years through 2034. Of the operating loss carryforward, $1.7 million will result in a benefit within additional paid in capital when realized. The Company also has state tax credit carryforwards of $0.2 million and state net operating loss carryforwards of $7.2 million that expire in various tax years through 2034. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result of this analysis and based on the current year’s taxable income, and utilization of certain carryforwards management determined that we should reduce our valuation allowance in the current year. A valuation allowance is still required to the extent it is more likely than not that the future benefit associated with the foreign tax credit carryforwards and certain state tax loss carryforwards will not be realized. As a result, the Company recorded a tax expense associated with an increase of the deferred tax asset valuation allowance of $0.1 million for 2016.

The Company records the benefits relating to uncertain tax positions only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. At December 31, 2016, the Company’s reserve for uncertain tax positions is not material and we believe we have adequately provided for its tax-related liabilities. The Company is no longer subject to United States federal income tax examinations for years before 2013. The provision for (benefit from) income taxes differed from the provision computed by applying the Federal statutory rate to income (loss) from continuing operations before taxes due to the following:

	Year ended December 31,
	2016			2015
Federal statutory tax rate		34.0	%		34.0	%
State taxes		1.4			5.8
Non deductible expenses		2.7			1.0
Tax credits		(6.7	)		(4.8	)
Foreign income tax rate differential		(2.1	)		(1.3	)
Valuation allowance		0.1			(9.5	)
Tax return and audit adjustments		0.0			3.8
Other		2.0			(1.8	)
		31.4	%		27.2	%