INCOME TAXES

Income tax expense (benefit) from continuing operations is summarized as follows:



	Year ended December 31,
	2015			2014			2013
Current:
Federal	$	167		$	(8,856	)	$	1,681
State	(57		)	372			773
Deferred:
Federal	670			4,973			1,702
State	2,676			2,104			1,948
Total income tax expense (benefit)	$	3,456		$	(1,407	)	$	6,104

The consolidated income tax provision was different from the amount computed using the U.S. statutory income tax rate for the following reasons:



	Year ended December 31,
	2015			2014			2013
Pre-tax (loss) income from continuing operations	$	(2,120	)	$	(10,663	)	$	10,008
Federal tax (benefit) expense, at statutory rates	(742		)	(3,732		)	3,503
State tax expense, net of federal tax effects	842			13			1,748
Entity restructuring reduction in state deferred tax assets	—			1,597			—
Non-deductible transaction costs	102			849			—
Permanent non-deductible expenses	223			203			241
Impact of equity investment income at statutory tax rate	1,795			128			575
Change in state valuation allowance	860			—			—
Non-deductible executive compensation	508			—			—
Tax effect of uncertain tax position	4			(302		)	86
Employment credits	(100		)	(100		)	(276		)
Other	(36		)	(63		)	—
Reduction in gross deferred tax assets due to IRC Section 382 limitations	—			—			227
Total tax expense (benefit) from continuing operations	$	3,456		$	(1,407	)	$	6,104

The Company’s effective tax rate was 114.9%, 13.6% and 52.4% for the years ended December 31, 2015, 2014 and 2013, respectively. The Company’s tax rate was different from the statutory tax rate primarily due to state income taxes, a reduction in deferred tax assets resulting from state NOL’s not able to be recognized due to expiration, the establishment of a valuation allowance for state NOL's and executive compensation and other expenses that are not deductible for tax purposes.

Components of the Company’s deferred tax assets (liabilities) are as follows:



	December 31,
	2015			2014
Tax basis of property, equipment and other assets over book basis	$	56,892		$	58,080
Net operating loss carryforwards	21,867			21,298
Deferred income	10,708			10,193
Deferred rent	7,305			6,515
Equity compensation accruals	4,155			3,894
Compensation and other accruals	3,293			2,842
Tax basis of goodwill and intangible property over book	779			1,881
Basis difference in investee	74			1,056
Alternative minimum tax credit carryforwards	2,087			779
Valuation allowance	(860		)	—
Total deferred tax asset	$	106,300		$	106,538

The balance sheet presentation of the Company’s deferred income taxes is as follows:



	December 31,
	2015			2014
Current deferred tax assets	$	—		$	5,046
Current deferred tax liabilities	—			(355		)
Net current deferred tax assets	$	—		$	4,691
Non-current deferred tax assets	$	107,618		$	102,168
Non-current deferred tax liabilities	(458		)	(321		)
Net non-current deferred tax assets before valuation allowance	107,160			101,847
Valuation allowance against non-current deferred tax assets	(860		)	—
Net non-current deferred tax assets	$	106,300		$	101,847
Net deferred tax assets	$	106,300		$	106,538

The Company experienced an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, during the fourth quarter of 2008. The ownership change has and will continue to subject the Company’s pre-ownership change net operating loss carryforwards to an annual limitation, which will significantly restrict its ability to use them to offset taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of the Company’s stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.

As a result of the ownership change, the Company is limited to an approximate $1.7 million annual limitation on its ability to utilize its pre-change NOLs. The Company’s acquisitions of Digiplex and Sundance (see Note 4 - Acquisitions) triggered ownership changes for these companies during the third quarter of 2014 and fourth quarter of 2015, respectively. The Company has evaluated the impact of these ownership changes and determined at the acquisition date that both companies had net unrealized built-in gains (“NUBIG”). The NUBIG was determined based on the difference between the fair market value of the Company's assets and their tax basis as of the ownership change date. Because a NUBIG existed with regard to each of these acquisitions, items of income existing before the ownership change date that are recognized during the five-year period beginning on the date of ownership change serve to increase the annual limitation of losses the Company can utilize under IRC Section 382. Therefore, the Company does not believe that the ownership changes will significantly limit its ability to utilize net operating losses acquired from Digiplex or Sundance.

The Company recorded a deferred tax asset of $9,716 in the acquisition of Digiplex and a deferred tax asset of $1,444 in the acquisition of Sundance.

As discussed in Note 4–Acquisitions, the Company recorded a deferred tax asset of $3,469 in the acquisition of Muvico.

At December 31, 2015, the Company had federal and state net operating loss carryforwards of $51,839 and $58,110, respectively, net of IRC Section 382 limitations, to offset the Company’s future taxable income. The state net operating loss carryforwards are shown net of a valuation allowance for certain state net operating loss carryforwards that are expected to expire unused. The federal net operating loss carryforwards will begin to expire in the year 2020, and certain of the state net operating loss carryforwards began expiring in 2016. In addition, the Company’s alternative minimum tax credit carryforward of approximately $2,087 has an indefinite carryforward life but $787 is subject to the IRC Section 382 limitation.

Valuation Allowance

At December 31, 2015 and 2014, the Company’s deferred tax assets, net of IRC Section 382 limitations, were $107,160 and $106,538, respectively. As of each reporting date, the Company assesses whether it is more likely than not that its deferred tax assets will be recovered from future taxable income, taking into account such factors as earnings history, taxable income in the carryback period, reversing temporary differences, projections of future taxable income, the finite lives of certain deferred tax assets and the impact of IRC 382 limitations. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. When sufficient evidence exists that indicates that recovery is not more likely than not, a valuation allowance is established against the deferred tax assets, increasing the Company’s income tax expense in the period that such conclusion is made.

Management’s estimate of future taxable income is based on internal projections which consider historical performance, various internal estimates and assumptions, as well as certain external data, all of which management believes to be reasonable although inherently subject to significant judgment. If actual results differ significantly from the current estimates of future taxable income, and all prudent and feasible tax planning strategies are exhausted, a valuation allowance may need to be established for some or all of the Company's deferred tax assets. Establishing an allowance on the Company's net deferred tax assets could have a material adverse effect on the Company's financial condition and results of operations.

Management’s conclusion at December 31, 2015 that it is more likely than not that the Company's net deferred tax assets will be realized is partially based upon management’s estimate of future taxable income; however, as noted above, the Company believes, with regard to certain state net operating losses which have a carryforward period shorter than the federal net operating loss carryforward period, that it is more likely than not that these state net operating losses will expire unused. Therefore a valuation allowance against certain state net operating loss carryforwards of $860 was established for the three and twelve months ended December 31, 2015. Management’s judgment regarding the realizability of state net operating loss deferred tax assets may change due to further changes in state tax rates, apportionment, and business concentration.

Income Tax Uncertainties

The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities based on their technical merits.

As of December 31, 2015 and 2014, the amount of unrecognized tax benefits related to continuing operations was $173 and $167 respectively, all of which would affect the Company’s annual effective tax rate, if recognized.

A reconciliation of the beginning and ending uncertain tax positions is as follows:




Gross unrecognized tax benefits at January 1, 2013	$	2,678
Increases in tax positions for prior years	—
Decreases in tax positions for prior years	—
Increases in tax positions for current year	132
Settlements	—
Lapse in statute of limitations	(47		)

Gross unrecognized tax benefits at December 31, 2013	2,763
Increases in tax positions for prior years	43
Decreases in tax positions for prior years	—
Decreases in tax positions for current year	(210		)
Settlements	—
Lapse in statute of limitations	(2,429		)

Gross unrecognized tax benefits at December 31, 2014	167
Increases in tax positions for prior years	1
Decreases in tax positions for prior years	—
Increases in tax positions for current year	44
Settlements	—
Lapse in statute of limitations	(39		)

Gross unrecognized tax benefits at December 31, 2015	$	173

The Company files consolidated and separate income tax returns in the United States federal jurisdiction and in many state jurisdictions. The Company is no longer subject to United States federal income tax examinations for years before 2000 and is no longer subject to state and local income tax examinations by tax authorities for years before 1999. The Company is currently under federal income tax examination for both 2012 and 2014.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in interest expense and general and administrative expenses, respectively, in the Company’s consolidated statements of operations. Amounts accrued for interest and penalties as of December 31, 2015 and 2014 are not significant to the consolidated financial statements.