NOTE 4. INCOME TAXES

On a quarterly basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances, including discrete events, by each tax jurisdiction. Our effective tax rate for the three and nine months ended September 30, 2015 was 38% and 36%, respectively. Our effective tax rate for the three and nine months ended September 30, 2014 was 10%. The lower effective tax rate for 2014 was the result of a favorable audit settlement with the Minnesota Department of Revenue which included the acceptance of our research and development credits of $100,000 which were previously reserved for as an uncertain position. The effective tax rate for the year ended December 31, 2015 is expected to be 36% compared to 8.4% for the year ended December 31, 2014. The decreased tax rate in 2014 was largely due to the result of the favorable audit settlement with the Minnesota Department of Revenue.

The differences between federal income taxes computed at the federal statutory rate and reported income taxes for the three and nine months ended September 30, 2015 and 2014 are as follows:

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2015			2014			2015			2014
Statutory federal tax provision (benefit)	$	(57,000	)	$	129,000		$	(327,000	)	$	259,000
State income taxes (benefits)	(6,000		)	14,000			(32,000		)	33,000
Income tax credits	(14,000		)	(19,000		)	(39,000		)	(33,000		)
Change in uncertain tax positions	(4,000		)	1,000			(4,000		)	(99,000		)
Return to provision true-up	5,000			(84,000		)	5,000			(84,000		)
Other	—			(3,000		)	—			(3,000		)

Income tax expense (benefit)	$	(76,000	)	$	38,000		$	(397,000	)	$	73,000

At September 30, 2015, we had $51,750 of net uncertain tax benefit positions remaining in other long-term liabilities related to research and development credits that would increase our effective income tax rate if recognized. At December 31, 2014, we had $56,000 of net uncertain tax benefit positions recorded in other long-term liabilities that would reduce our effective income tax rate if recognized.