Income Taxes

The following table sets forth income before taxes and the income tax (benefit) expense (in thousands):



	Year Ended December 31,
	2017			2016
Current:
Federal	$	—		$	—
State	$	—		$	—
	—			—
Deferred:
Federal	(212		)	(73		)
State	(18		)	(6		)
	(230		)	(79		)
Income tax (benefit) expense	$	(230	)	$	(79	)

Our effective tax rate differs from the statutory federal tax rate as shown in the following table (in thousands):



	Year Ended December 31,
	2017			2016
U.S. federal income taxes at the statutory rate	$	1,945		$	(1,264	)
State taxes, net of federal effects	146			(108		)
Permanent differences	(244		)	10
Impact of state tax rate change to deferred	—			(36		)
Other, including effect of Tax Cuts and Jobs Act	1,725			(28		)
Change in valuation allowance	(3,802		)	1,347
Income tax (benefit) expense	$	(230	)	$	(79	)

The tax effect of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities is presented below (in thousands):



	December 31,
	2017			2016
Deferred tax assets:
Tax benefit of operating loss carry forward	$	7,942		$	11,612
Reserves and allowances	1			12
Accrued expenses	73			35
Charitable contributions	134			198
Stock-based compensation	802			1,098
Fixed assets	—			102
Goodwill	144			—
Intangible amortization	61			—
Texas margin tax temporary credit	233			239
Total deferred tax assets	9,390			13,296
Valuation allowance	(9,390		)	(13,192		)
Net deferred tax assets	$	—		$	104

Deferred tax liabilities:
Goodwill	—			230
Intangible amortization	—			104
Total deferred tax liabilities	$	—		$	334

Net deferred tax liability	$	—		$	(230	)

The ending balances of the deferred tax asset have been fully reserved, reflecting the uncertainties as to realizability evidenced by the Company’s historical results. The change in valuation allowance for the year ended December 31, 2017 is a decrease of $3,802,000.

We and our subsidiary file federal and state tax returns on a consolidated basis. During 2013, we determined that an “ownership change” had occurred in 2013 (as defined under Section 382 of the Internal Revenue Code of 1986, as amended) which places an annual limitation on the utilization of the net operating loss (“NOL”) carryforwards accumulated before the ownership change. As a result of this annual limitation and the limited carryforward life of the accumulated NOLs, we determined that the ownership change resulted in the permanent loss of $1.9 million of tax benefit associated with the NOL carryforwards. If additional ownership changes occur in the future, the use of the NOL carryforwards could be subject to further limitation. At December 31, 2017, we had federal NOL carryforwards of $32,226,000 available to offset future federal taxable income which expire in various amounts from 2018 through 2036. The Company also has various state NOL carryforwards. The determination of the state NOL carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards.

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changes the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%, a move from a worldwide tax system to a semi-territorial system, a change in the treatment of operating loss carryforwards generated subsequent to 2017 fiscal year as well as other changes. As a result of enactment of the legislation, the Company recorded a one-time change to its deferred tax assets and related valuation allowance. As the Company has a full valuation allowance such change did not impact the Company’s results of operations or financial position.

There were no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC Topic 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, that have been recorded on the Company’s consolidated financial statements for the years ended December 31, 2017 and 2016. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.

Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2017 and 2016.

The federal and state tax returns for the years ending December 31, 2016, 2015 and 2014 are currently open and the tax return for the year ended December 31, 2017 will be filed by September 2018.