(8) INCOME TAX

The income tax provision (benefit) on income from operations consists of the following:


	Years ended December 31,
	2011			2010			2009
Current:
Federal	$	17,239		$	13,552		$	16,822
State		2,233			2,252			2,536

		19,472			15,804			19,358
Deferred		(2,916	)		(959	)		(1,730	)

	$	16,556		$	14,845		$	17,628

Reconciliation of the U.S. statutory income tax rate to our effective income tax expense rate for operations follows:


	Years ended December 31,
	2011			2010			2009
Federal income tax expense at statutory rate	$	15,440		$	13,965		$	15,623
State income tax, net of federal income tax benefit		1,238			1,218			1,634
Non-deductible business expenses		918			976			965
Qualified manufacturing activities		(840	)		(728	)		(586	)
Research and development credit		(177	)		(579	)		—
Other, net		(23	)		(7	)		(8	)

	$	16,556		$	14,845		$	17,628

Approximately 35% of our stock option expense is derived from incentive stock options ("ISOs"). As such, a tax benefit is not recorded at the time the compensation cost related to the options is recorded for book purposes due to the fact that an ISO does not ordinarily result in a tax benefit unless there is a disqualifying disposition. Stock option grants of non-qualified options result in the creation of a deferred tax asset, which is a temporary difference, until the time that the option is exercised. Due to the treatment of ISOs for tax purposes, our effective tax rate from year to year is subject to variability.

The tax effects of the major items recorded as deferred tax assets and liabilities as of December 31 are:


	2011			2010
Deferred income tax assets:
Operating expenses not currently deductible	$	4,597		$	2,642
Employee benefit plans		5,156			4,020
Capital loss carryforward		203			160
Property and equipment		397			195

Total deferred income tax assets		10,353			7,017
Deferred income tax liabilities:
Intangible assets		(10,043	)		(9,673	)
Other		(156	)		(149	)

Total deferred income tax liabilities		(10,199	)		(9,822	)

Net deferred income tax assets (liabilities)	$	154		$	(2,805	)

Although realization is not assured, we believe it is more likely than not that all the deferred tax assets at December 31, 2011 and 2010 will be realized. Accordingly, we believe no valuation allowance is required for the deferred tax assets. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of reversing taxable temporary differences are revised.

No reserves for uncertain income tax positions have been recorded pursuant to ASC 740-10, Income Taxes.

The Internal Revenue Service ("IRS") is examining our U.S. income tax return for the year 2010. As of February 22, 2012, no significant adjustments have been proposed by the IRS. We are unable to make a reasonable estimate as to when cash settlements, if any, will occur.

We are subject to U.S. federal tax as well as income tax of multiple state and local jurisdictions. We are no longer subject to United States federal income tax examinations for years before 2008. We are no longer subject to state and local income tax examinations by tax authorities for the years before 2007.

We paid income taxes, net of refunds received, of $13.4 million in 2011, $15.8 million in 2010, and $18.1 million in 2009.