Income Taxes

The following table provides a reconciliation of our effective tax rate from the federal statutory tax rate for the fiscal years ended October 31, 2016, 2015, and 2014 ($ amounts in thousands):



	2016				2015				2014
	$		%*		$		%*		$		%*
Federal tax provision at statutory rate	206,159		35.0		187,447		35.0		176,604		35.0
State tax provision, net of federal benefit	26,970		4.6		21,947		4.1		23,778		4.7
Domestic production activities deduction	(16,874	)	(2.9	)	(12,284	)	(2.3	)	(14,796	)	(2.9	)
Other permanent differences	(7,037	)	(1.2	)	(7,821	)	(1.5	)	(6,214	)	(1.2	)
Reversal of accrual for uncertain tax positions	(11,177	)	(1.9	)	(15,331	)	(2.9	)	(11,022	)	(2.2	)
Accrued interest on anticipated tax assessments	1,964		0.3		2,588		0.5		1,847		0.4
Increase in unrecognized tax benefits	2,052		0.3		3,214		0.6		5,694		1.1
Valuation allowance — recognized	1,018		0.2		3,681		0.7		1,328		0.3
Valuation allowance — reversed	—		—		(16,323	)	(3.0	)	(13,256	)	(2.6	)
Other	3,857		0.7		5,277		1.0		587		0.1
Income tax provision*	206,932		35.1		172,395		32.2		164,550		32.6



*	Due to rounding, amounts may not add.

We currently operate in 19 states and are subject to various state tax jurisdictions. We estimate our state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction, and our ability to utilize certain tax-saving strategies. Based on our estimate of the allocation of income or loss among the various taxing jurisdictions and changes in tax regulations and their impact on our tax strategies, we estimated our rate for state income taxes will be 7.0% in fiscal 2016. Our state income tax rate was 6.3% and 7.2% in fiscal 2015 and 2014, respectively.

The following table provides information regarding the provision (benefit) for income taxes for each of the fiscal years ended October 31, 2016, 2015, and 2014 (amounts in thousands):



	2016		2015			2014
Federal	$	189,170	$	181,819		$	163,089
State	17,762		(9,424		)	1,461
	$	206,932	$	172,395		$	164,550

Current	$	186,662	$	122,953		$	129,047
Deferred	20,270		49,442			35,503
	$	206,932	$	172,395		$	164,550

The following table provides a reconciliation of the change in the unrecognized tax benefits for the years ended October 31, 2016, 2015, and 2014 (amounts in thousands):



	2016			2015			2014
Balance, beginning of year	$	51,889		$	58,318		$	78,105
Increase in benefit as a result of tax positions taken in prior years	8,110			16,802			10,314
Increase in benefit as a result of tax positions taken in current year	694			9,005			442
Decrease in benefit as a result of settlements	(28,976		)	(31,013		)
Decrease in benefit as a result of completion of audits							(1,222		)
Decrease in benefit as a result of lapse of statute of limitations	(1,445		)	(1,223		)	(29,321		)
Balance, end of year	$	30,272		$	51,889		$	58,318

The statute of limitations has expired on our federal tax returns for fiscal years through 2010.

Our unrecognized tax benefits are included in “Income taxes payable” on our Consolidated Balance Sheets. If these unrecognized tax benefits reverse in the future, they would have a beneficial impact on our effective tax rate at that time. During the next 12 months, it is reasonably possible that the amount of unrecognized tax benefits will change, but we are not able to provide a range of such change. The anticipated changes will be principally due to the expiration of tax statutes, settlements with taxing jurisdictions, increases due to new tax positions taken, and the accrual of estimated interest and penalties.

The amounts accrued for interest and penalties are included in “Income taxes payable” on our Consolidated Balance Sheets. The following table provides information as to the amounts recognized in our tax provision, before reduction for applicable taxes and reversal of previously accrued interest and penalties, of potential interest and penalties in the 12-month periods ended October 31, 2016, 2015, and 2014, and the amounts accrued for potential interest and penalties at October 31, 2016 and 2015 (amounts in thousands):



Expense recognized in the Consolidated Statements of Operations and Comprehensive Income
Fiscal year
2016	$	3,426
2015	$	4,454
2014	$	9,694



Accrued at:
October 31, 2016	$	9,282
October 31, 2015	$	17,012

The components of net deferred tax assets and liabilities at October 31, 2016 and 2015 are set forth below (amounts in thousands):



	2016			2015
Deferred tax assets:
Accrued expenses	$	103,134		$	72,426
Impairment charges	113,950			130,709
Inventory valuation differences	78,483			67,610
Stock-based compensation expense	49,004			54,768
Amounts related to unrecognized tax benefits	8,345			25,267
State tax, net operating loss carryforward	50,031			53,103
Other	6,329			7,410
Total assets	409,276			411,293
Deferred tax liabilities:
Capitalized interest	85,873			107,970
Deferred income	52,406			17,661
Expenses taken for tax purposes not for book	47,045			37,868
Depreciation	5,440			3,819
Deferred marketing	18,945			14,384
Total liabilities	209,709			181,702
Net deferred tax assets before valuation allowances	199,567			229,591
Cumulative valuation allowance - state	(32,154		)	(31,136		)
Net deferred tax assets	$	167,413		$	198,455

Since the beginning of fiscal 2007, we recorded significant deferred tax assets as a result of the recognition of inventory impairments and impairments of investments in unconsolidated entities. In accordance with GAAP, we assess whether a valuation allowance should be established based on our determination of whether it is more-likely-than-not that some portion or all of the deferred tax assets would not be realized. At October 31, 2016 and 2015, we determined that it was more-likely-than-not that our deferred assets would be realized for federal purposes. Accordingly, at October 31, 2016 and 2015, we did not record any valuation allowances against our federal deferred tax assets.

We file tax returns in the various states in which we do business. Each state has its own statutes regarding the use of tax loss carryforwards. Some of the states in which we do business do not allow for the carryforward of losses, while others allow for carryforwards for 5 years to 20 years.

For state tax purposes, due to past and projected losses in certain jurisdictions where we do not have carryback potential and/or cannot sufficiently forecast future taxable income, we recognized net cumulative valuation allowances against our state deferred tax assets at October 31, 2016 and 2015, as shown above. During fiscal 2015 and 2014, due to improved actual and/or projected operating results, we reversed $16.3 million, and $13.3 million, respectively, of state deferred tax asset valuation allowance previously recognized. During fiscal 2016, no state deferred tax asset valuation allowances were reversed. In addition, we establish valuation allowances for newly created deferred tax assets in certain jurisdictions where it is more-likely-than-not that the deferred tax asset would not be realized. During fiscal 2016, 2015, and 2014, we recognized new valuation allowances of $1.0 million, $3.7 million, and $1.3 million, respectively. We will continue to review our deferred tax assets in accordance with ASC 740.