INCOME TAXES

Income taxes consist of the following in each fiscal year (in thousands):



	2014			2013			2012
Current:
Federal	$	43,864		$	51,367		$	35,205
State	3,770			7,583			5,248
	47,634			58,950			40,453
Deferred:
Federal	3,700			(16,897		)	(5,553		)
State	452			(1,707		)	(1,062		)
	4,152			(18,604		)	(6,615		)
Income tax expense from continuing operations	$	51,786		$	40,346		$	33,838

Income tax benefit from discontinued operations	$	(3,629	)	$	(19,566	)	$	(6,651	)

A reconciliation of the federal statutory income tax rate to our effective tax rate for continuing operations is as follows:



	2014		2013		2012
Computed at federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.3		3.4		3.3
Benefit of jobs tax credits, net of valuation allowance	(1.2	)	(1.9	)	(1.0	)
Benefit related to COLIs	(1.6	)	(2.9	)	(4.6	)
Other, net	(0.2	)	(0.8	)	0.5
	35.3	%	32.8	%	33.2	%

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at each year-end are presented below (in thousands):



	2014			2013
Deferred tax assets:
Accrued pension and postretirement benefits	$	77,170		$	66,698
Accrued insurance	12,874			13,115
Accrued vacation pay expense	2,132			3,259
Deferred income	1,436			1,441
Impairment	25,391			27,944
Lease commitments related to closed or refranchised locations	12,686			11,361
Other reserves and allowances	1,303			3,964
Tax loss and tax credit carryforwards	10,705			4,619
Leasing transactions	7,201			7,471
Share-based compensation	9,416			13,128
Other, net	4,508			4,280
Total gross deferred tax assets	164,822			157,280
Valuation allowance	(8,624		)	(4,619		)
Total net deferred tax assets	156,198			152,661
Deferred tax liabilities:
Property and equipment, principally due to differences in depreciation	(38,362		)	(9,753		)
Intangible assets	(28,149		)	(27,350		)
Other	(2,069		)	(40		)
Total gross deferred tax liabilities	(68,580		)	(37,143		)
Net deferred tax assets	$	87,618		$	115,518

Deferred tax assets at September 28, 2014 include state net operating loss carryforwards of approximately $75.4 million expiring at various times between 2017 and 2034. At September 28, 2014 and September 29, 2013, we recorded a valuation allowance related to losses and state tax credits of $8.6 million and $4.6 million, respectively. The current year change in the valuation allowance of $4.0 million relates primarily to increases in valuation allowance on state net operating losses and state tax credits. We believe that it is more likely than not that these loss and credit carryforwards will not be realized and that the remaining deferred tax assets will be realized through future taxable income or alternative tax strategies.

During the third quarter of 2014, we completed a fixed asset cost segregation study which was included in our tax return filings related to fiscal year ended September 29, 2013. This study along with other return to provision adjustments related to fiscal year ended September 29, 2013 resulted in a $1.4 million increase in current deferred tax assets, a $42.1 million decrease in non-current deferred tax assets, a $12.9 million decrease in income taxes payable, and a $27.5 million increase in income tax refunds receivable of which $20.5 million was received in the quarter ended September 28, 2014. The income tax expense impact of the other return to provision adjustments was $0.3 million.

Our gross unrecognized tax benefits associated with uncertain income tax positions decreased during fiscal 2014 and 2013 based on a preliminary assessment of a state income tax audit. A reconciliation of the beginning and ending amounts of unrecognized tax benefits follows (in thousands):



	2014			2013
Balance beginning of year	$	769		$	905
Change related to tax positions	(395		)	(136		)
Balance at end of year	$	374		$	769

From time to time, we may take positions for filing our tax returns which may differ from the treatment of the same item for financial reporting purposes. The ultimate outcome of these items will not be known until the IRS or state has completed its examination or until the statute of limitations has expired.

It is reasonably possible that changes of approximately $0.4 million to the gross unrecognized tax benefits will be required within the next twelve months. These changes relate to the possible settlement of state tax audits.

The major jurisdictions in which the Company files income tax returns include the United States and states in which we operate that impose an income tax. The federal statutes of limitations have not expired for fiscal years 2011 and forward. The Company’s federal statute of limitations for fiscal year 2009 was extended and remains open. The statutes of limitations for California and Texas, which constitute the Company’s major state tax jurisdictions, have not expired for fiscal years 2010 and 2009, respectively, and forward. However, the Company has pending appeals for California (related to fiscal years 2001 to 2007) and Texas (related to fiscal year 2007) for specific claims.