10. INCOME TAXES

Income tax expense on continuing operations for the periods presented differs from the “expected” federal income tax expense computed by applying the U.S. federal statutory rate of 34 % to earnings before income taxes for the three months ended December 31, as a result of the following:

(in thousands)	2014		2013
Computed expected tax expense	$	1,730	$	1,251
State income taxes		74		53
Stock option disqualifying dispositions and other permanent differences		42		18
Total income tax expense	$	1,846	$	1,322

Included in the Company’s deferred tax liabilities at December 31, 2014 is approximately $17.2 million representing the tax effect of indefinite lived intangible assets from club acquisitions which are not deductible for tax purposes. These deferred tax liabilities will remain in the Company’s balance sheet until the related clubs are sold.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the quarters ended December 31, 2014 and 2013, the Company recognized no interest and penalties for unrecognized tax benefits. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states. The last three years remain open to tax examination.