INCOME TAXES

Income (loss) before income tax expense (benefit) consists of the following:



	Years ended December 31,
	2017		2016			2015
Domestic	$	2,468	$	(1,527	)	$	(144	)
Foreign	3,359		14,153			12,950
Income before income taxes	$	5,827	$	12,626		$	12,806

The components of the income tax expense (benefit) for income taxes are as follows:



	Years ended December 31,
	2017			2016			2015
Current:
Federal	$	18,951		$	409		$	199
State	507			40			78
Foreign	2,072			3,482			562
Current income tax expense	21,530			3,931			839
Deferred:
Federal	1,038			(2,357		)	88
State	(580		)	(229		)	9
Foreign	(1,645		)	174			(943		)
Deferred income tax benefit	(1,187		)	(2,412		)	(846		)
Income tax expense (benefit)	$	20,343		$	1,519		$	(7	)

Reconciliations of the income tax expense at the U.S. federal statutory income tax rate compared to our actual income tax expense (benefit) are summarized below:



	Years ended December 31,
	2017			2016			2015
Tax expense at statutory rate of 34%	$	1,981		$	4,427		$	4,354
State income taxes, net of federal benefit	81			(50		)	54
Foreign tax rate difference	(2,057		)	(1,939		)	(3,708		)
Research and development credit	(1,037		)	(917		)	(853		)
Change in valuation allowance	678			162			(28		)
Equity based compensation	33			(255		)	54
Manufacturing credit	(191		)	(61		)	11
Permanent impact of non-deductible cost	766			412			(14		)
Provision to return adjustments	777			(61		)	(59		)
Impact of Tax Cuts and Jobs Act of 2017	19,355			—			—
Other	(43		)	(199		)	182
Income tax expense (benefit)	$	20,343		$	1,519		$	(7	)

The components of our net deferred income tax asset and liabilities are as follows:



	As of December 31,
	2017			2016
Net deferred income tax asset - Non-current
Warranty cost	$	695		$	1,121
Inventory reserve	419			456
Unearned service revenue	5,364			7,088
Employee stock options	4,366			4,501
Tax Credits	1,785			2,035
Loss carryforwards	8,782			8,005
Other, net	1,479			1,213
Total deferred tax assets	22,890			24,419
Valuation Allowance	(1,631		)	(876		)
Total deferred tax assets net of valuation allowance	21,259			23,543
Net deferred income tax liability - Non-current
Bad debt reserve	(2		)	(159		)
Depreciation	(3,675		)	(6,799		)
Goodwill	(1,574		)	(2,279		)
Intangible assets	(1,097		)	(1,409		)
Total deferred tax liabilities	(6,348		)	(10,646		)
Net deferred tax assets	$	14,911		$	12,897

On December 22, 2017, the United States enacted the Tax Cuts Act, resulting in significant modifications to existing law. We follow the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which provides additional clarification regarding the application of ASC Topic 740 in situations where a company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts Act for the reporting period in which the Tax Cuts Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Tax Cuts Act's December 2017 enactment date and ending when we have obtained, prepared, and analyzed the information needed in order to complete the accounting for such income tax effects, but in no circumstances will the measurement period extend beyond one year from the enactment date.

Under the Tax Cuts Act, changes include lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory tax on accumulated earnings in foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to United States taxation. The statutory corporate tax rate reduction is effective for tax years beginning on or after January 1, 2018. Based on our best estimate, we have calculated the impact of the Tax Cuts Act in our current year-end provision in accordance with our understanding of the Tax Cuts Act and available guidance. As a result, we recorded an amount of $19.4 million as an additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The portion of this provisional amount that related to the transition tax on the mandatory deemed repatriation of foreign earnings was $17.4 million based on our best estimate and guidance available as of the date of this filing. Additional work is necessary to perform a more detailed analysis of historical foreign earnings. Upon gathering all necessary data, interpreting any additional guidance from tax authorities, and completing the analysis, our provisional amount will be adjusted in the measurement period allowable in accordance with SAB 118. Our provisional amount relating to the transition tax may materially differ upon completing the analysis compared to the amount accrued as of December 31, 2017. The portion of the amount that related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was $2.0 million.

Our domestic entities had deferred income tax assets in the amount of $7.7 million and $7.8 million as of December 31, 2017 and December 31, 2016, respectively. At December 31, 2017 and 2016, our foreign subsidiaries had deferred tax assets primarily relating to net operating losses of $7.9 million and $6.4 million, respectively, some of which expire in the next 1 to 9 years and others which can be carried forward indefinitely. The valuation allowance for deferred tax assets as of December 31, 2017 and 2016 was $1.6 million and $0.9 million, respectively. The net change in the total valuation allowance for each of the years ended December 31, 2017, 2016 and 2015 was a $0.7 million and a $0.1 million increase, and $1.0 million decrease, respectively.

The valuation allowance as of December 31, 2017 and 2016 was primarily related to foreign net operating loss carryforwards that, in the judgment of management, were not more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected taxable income, and tax-planning strategies in making this assessment.

Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. We review our tax contingencies on a regular basis and make appropriate accruals as necessary.

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The table below summarizes the open tax years and ongoing tax examinations in major jurisdictions as of December 31, 2017:



Jurisdiction	Open Years	Examination in Process
United States - Federal Income Tax	2014-2017	N/A
United States - various states	2013-2017	2014-2016
Germany	2013-2017	N/A
Switzerland	2017	N/A
Singapore	2013-2017	N/A

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is not material. We do not currently anticipate that the total amount of unrecognized tax benefits will result in material changes to our financial position. We are subject to income taxes at the federal, state and foreign country level. Our tax returns are subject to examination at the U.S. federal level from 2014 forward and at the state level are subject to a three to four year statute of limitations depending on the state.