NOTE 7 – INCOME TAXES

Income taxes recorded in our consolidated statements of income consists of the following:


	2011		2010			2009
Taxes currently payable
Federal	$	402,617	$	1,005,675		$	1,042,589
State		439,743		517,726			600,618
Deferred Income Taxes		661,557		(421,512	)		272,348

Total Income Tax Expense	$	1,503,917	$	1,101,889		$	1,915,555

We account for income taxes in accordance with GAAP. As required by GAAP, we recognize the financial statement benefit of tax positions only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	2011			2010
Balance Beginning of Year	$	36,317		$	200,603
Gross Increases
Prior Period Tax Positions		—			—
Gross Decreases
Prior Period Tax Positions		(36,317	)		(164,286	)
Settlements		—			—
Balance at End of Year	$	—		$	36,317

Included in the balance as of December 31, 2010, are unrecognized tax benefits related to positions taken on state income tax return filings.

We have no unrecognized tax benefits at December 31, 2011 that, if recognized, would affect the effective tax rate. As of December 31, 2010 we had $21,142 of unrecognized tax benefits, net of a federal tax benefit of $15,175, which if recognized would affect the effective tax rate.

We are primarily subject to United States, Minnesota and Iowa income taxes. Tax years subsequent to 2007 remain open to examination by United States and state tax authorities. Our policy is to recognize interest and penalties related to income tax matters in income tax expense. The Internal Revenue Service examined our 2006 and 2007 Federal tax returns. The examination of these returns was completed in the second quarter of 2009. The examination resulted in approximately $173,000 of additional tax expense in 2009. On April 29, 2010, the Minnesota Department of Revenue completed its audit of our state tax returns for the years 2006, 2007 and 2008. Following the completion of that audit, we recognized approximately $124,000 in net tax benefits in April 2010 to reduce our accrual for unrecognized tax positions related to gains on our MWH investment sold in 2006. The above mentioned tax examination also resulted in an additional state tax liability of $22,944, including interest. As of December 31, 2011 we had no interest or penalties accrued that related to income tax matters.

The differences between the statutory federal tax rate and the effective tax rate were as follows:


	2011			2010			2009

Statutory Tax Rate		35.00	%		35.00	%		35.00	%
Effect of:
Surtax Exemption		(1.00	)		(1.00	)		(1.00	)
State Income Taxes Net of Federal Tax Benefit		7.18			6.39			8.72
Loss on Escrow		—			—			4.84
Uncertain Tax Positions		(0.82	)		(3.94	)		—
IRS Examination		—			—			2.82
Other, Net		2.23			(1.50	)		3.45
Effective tax rate		42.59	%		34.95	%		53.83	%

Deferred income taxes and unrecognized tax benefits reflected in our consolidated balance sheets are summarized as follows:


	2011			2010
Current Deferred Tax (Assets) / Liabilities
Accrued Expenses	$	(586,849	)	$	(589,605	)
Deferred Compensation		(78,742	)		(270,245	)
Other		(241,761	)		(386,790	)
Total Current Deferred Tax Asset		(907,352	)		(1,246,640	)

Non-Current Deferred Tax (Asset) / Liabilities
Fixed Assets		6,346,089			5,672,800
Intangible Assets		6,770,867			7,488,462
Unrealized Losses on Interest Rate Swaps		(501,040	)		(858,928	)
Deferred Compensation		(376,224	)		(454,966	)
Partnership Basis		1,902,792			1,584,517
Subtotal Deferred Tax (Assets) / Liabilities Long-Term		14,142,484			13,431,885
Unrecognized Tax Benefit		—			36,317
Accrued interest on Unrecognized Tax Benefit		—			8,316
Total Deferred Tax Liabilities Long-Term		14,142,484			13,476,518

Net Deferred Tax Liability	$	13,235,132		$	12,229,878