Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

15. Income Taxes

Income tax expense consists of the following for the years ended December 31 (in thousands):

		September 30,			September 30,			September 30,
	Years Ended December 31,
	2011			2010			2009
Current:
Federal	$	(229	)	$	(216	)	$	(2,551	)
State		18			83			(132	)
	$	(211	)	$	(133	)	$	(2,683	)
Deferred:
Federal	$	(556	)	$	(817	)	$	(1,038	)
State		(77	)		(150	)		(488	)
	$	(633	)	$	(967	)	$	(1,526	)
Total income tax provision	$	(844	)	$	(1,100	)	$	(4,209	)

Deferred income taxes include the net tax effects of net operating loss (“NOL”) carryforwards and tax credits and the net tax effects of temporary differences between the carrying amounts of assets and liabilities and the amounts recorded for income tax purposes. The components of the deferred tax assets and liabilities are as follows as of December 31 (in thousands):

		September 30,			September 30,
	2011			2010
Deferred tax assets:
Allowance for bad debt	$	13		$	1,612
Inventory reserves and capitalization		93			103
Reserves		613			1,564
Deferred revenue		882			655
Deferred rent		1,141			1,148
Stock compensation		919			1,152
Sale of receivables		—			2
Investment Partnership		—			628
Net operating losses		96			63
Other		9			44
Total deferred tax assets		3,766			6,971
Deferred tax liabilities:
Prepaid expenses and other		(494	)		(420	)
Prepaid bonuses		(94	)		(198	)
Depreciation and amortization		(2,943	)		(2,383	)
Unbilled Receivables		(1,496	)		(3,046	)
Total deferred tax liabilities		(5,027	)		(6,047	)
Net deferred tax (liabilities) assets	$	(1,261	)	$	924

Deferred tax assets are reduced by a valuation allowance if the Company believes it is more likely than not that some portion or the entire deferred tax asset will not be realized. As the Company believes it is more likely than not to realize all its deferred tax assets, no valuation allowances have been recorded for the periods December 31, 2011 and December 31, 2010.

The following is a reconciliation of the statutory U.S. income tax rate to the Company’s effective tax rate for the years ended December 31:

		September 30,			September 30,			September 30,
	2011			2010			2009
Statutory rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit		6.1			9.8			5.1
Non-deductible acquisition and disposal costs		5.4			—			—
Non-deductible meals & entertainment costs		4.7			40.7			1.0
Non-deductible accrued incentive costs		—			—			0.7
Tax return adjustments & other		2.9			(172.2	)		2.1
APIC tax shortfall		15.7			782.7			1.0
Change in uncertain tax positions		(6.3	)		(47.9	)		(0.4	)
Change in valuation allowance		—			—			—
Effective tax rate		62.5	%		647.1	%		43.5	%

Tax Uncertainties

Effective January 1, 2007, the Company adopted the provisions of FASB ASC 740-10, (“ASC 740”), which is the guidance for uncertain tax positions. ASC 740 requires an evaluation process for all tax positions taken. ASC 740 prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. If the probability for sustaining a tax position is greater than 50%, then the tax position is warranted and recognition should be at the highest amount which would be expected to be realized upon ultimate settlement.

GTSI is subject to U.S. Federal income tax as well as income tax of multiple states and local jurisdictions. Under general rules of statutory limitation, the company's federal and state income tax returns remain open for examination back to 2008, with some states open four years to 2007.

The Company’s tax reserves relate to state nexus issues and the state impact of IRS audit adjustments for the 2003 through 2005 tax years. With each year the Company’s tax exposure rolls forward with incremental increases expected based on continued accrual of interest. The Company’s tax liability for unrecognized tax benefits are as follows as of December 31 (in thousands):

		September 30,			September 30,			September 30,
	2011			2010			2009
Balance at beginning of the year	$	107		$	157		$	197
Additions for prior year tax positions		1			20			5
Reductions for settlements		—			—			(2	)
Lapses in statute of limitations		(88	)		(70	)		(43	)
Balance at end of the year	$	20		$	107		$	157

GTSI’s practice is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company had less than $0.1 million accrued for interest and less than $0.1 million accrued for penalties as of December 31, 2011 and December 31, 2010. During the year, accrued interest and accrued penalties both decreased by less than $0.1 million due primarily to the settlement and payment of assessed liabilities. Interest will continue to accrue on certain issues in 2012 and beyond.

It is not anticipated that any increase or decrease during the next 12 months in the amount of unrecognized tax benefits will be material. Further, it is anticipated that the effective tax rate impact of any unrecognized tax benefits will be immaterial.