Income Taxes

The following table sets forth the components of income tax expense for each of the following fiscal years (in thousands):



	2015		2014		2013
Currently payable:
Federal	$	17,534	$	32,610	$	33,703
State	1,106		4,413		4,570
	18,640		37,023		38,273
Deferred:
Federal	20,241		9,266		4,359
State	1,792		877		682
	22,033		10,143		5,041
Total income tax expense	$	40,673	$	47,166	$	43,314

Deferred income taxes reflect the net tax effects of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):



	February 28, 2015			March 1, 2014
Deferred tax assets:
Deferred credits from landlords	$	10,563		$	10,323
Share-based compensation	4,235			4,361
Compensation accrual	458			5,456
Deferred compensation	2,492			2,281
Other	5,763			5,721
Total deferred tax assets	23,511			28,142
Deferred tax liabilities:
Property and equipment	(38,133		)	(24,625		)
Inventories	(11,938		)	(7,500		)
Other	(837		)	(1,381		)
Total deferred tax liabilities	(50,908		)	(33,506		)
Net deferred tax liability	$	(27,397	)	$	(5,364	)

The effective income tax rate varies from the statutory federal income tax rate for fiscal 2015, 2014, and 2013 due to the following:



	2015		2014		2013
Tax at statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	1.9		2.9		2.9
Tax contingencies	(0.3	)	—		(0.2	)
Benefit of worthless stock deduction	(3.6	)	—		—
Tax effect related to Running Specialty redeemable noncontrolling interest	0.6		0.5		0.7
Other	0.2		0.2		0.1
	33.8	%	38.6	%	38.5	%

As of February 28, 2015, the Company had approximately $2.1 million of net operating loss carryforwards for state tax purposes, of which $0.9 million of net operating loss carryforwards related to excess share-based compensation deductions and when realized, will be credited to shareholders’ equity. If not used, these carryforwards will expire between 2019 and 2030.

Payments of income taxes for fiscal 2015, 2014, and 2013 equaled $39.3 million, $31.0 million, and $45.0 million, respectively.

The Company is subject to U.S. federal income tax as well as income tax by multiple state jurisdictions. The Company has substantially concluded all U.S. federal income tax matters through fiscal 2011 and all state and local income tax matters through fiscal 2005. In the future, the Company may resolve some or all of the issues related to tax matters of open fiscal years, which may require the Company to make payments to settle agreed upon liabilities.

Uncertain Tax Positions

As of February 28, 2015 and March 1, 2014, the Company had $3.5 million and $9.6 million of unrecognized tax benefits respectively, $2.3 million and $2.7 million respectively, of which, if recognized, would affect the effective income tax rate. Of the total unrecognized tax benefits as of February 28, 2015, it is reasonably possible that the total unrecognized tax benefits could decrease by up to $0.7 million during the next twelve months due to audit settlements, expiration of statute of limitations, or other resolution of uncertainties. Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities that could be different from this estimate. In such case, the Company will record additional tax expense or tax benefit in the tax provision or reclassify amounts on the consolidated balance sheets in the period in which such matter is effectively settled with the tax authority.

The Company recognizes interest and penalty expense, as well as reversal of expense, related to unrecognized tax benefits as components of income tax expense. In fiscal 2015, 2014, and 2013, $(0.5) million, $0.2 million, and $(0.5) million, respectively, of interest and penalties were included in income tax expense on the consolidated statements of income. The Company has accrued $1.5 million and $2.0 million for the payment of interest and penalties as of February 28, 2015 and March 1, 2014, respectively.

The following table summarizes the activity related to the Company’s unrecognized tax benefits for U.S. federal and state tax jurisdictions and excludes accrued interest and penalties (in thousands):



	2015			2014			2013
Unrecognized tax benefits at beginning of year	$	7,638		$	6,268		$	6,548
Increases in tax positions for prior years	—			1,695			275
Decreases in tax positions for prior years	(5,595		)	(195		)	(29		)
Increases in unrecognized tax benefits as a result of current year activity	50			2,385			13
Decreases to unrecognized tax benefits relating to settlements with taxing authorities	(29		)	(209		)	—
Decreases to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	(65		)	(2,306		)	(539		)
Unrecognized tax benefits at end of year	$	1,999		$	7,638		$	6,268

The significant decrease in unrecognized tax benefits for fiscal 2015 reflects the completion of an IRS audit covering the years ending February 26, 2011, March 3, 2012, and March 2, 2013 and the filing of an automatic accounting method change to change the tax accounting treatment for a deferred tax asset. As a result of the resolution of the IRS audit and the filing of the automatic accounting method change, certain items reserved for in prior years no longer required a reserve.