Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

7. Income Taxes

For financial reporting purposes, income from continuing operations before income taxes includes the following components (in thousands):

	2012		2011		2010
United States	$	50,216	$	46,790	$	44,993
Foreign (Canada)		187		177		179
Total	$	50,403	$	46,967	$	45,172

Income tax expense (benefit) included in the consolidated statements of comprehensive income for the years ended December 31, 2012, 2011 and 2010 was as follows (in thousands):

	2012			2011			2010
Continuing operations:
Current:
Federal	$	17,613		$	17,645		$	15,789
Foreign		47			34			68
State and local		3,414			3,709			3,232
Total		21,074			21,388			19,089
Deferred:
Federal		(1,116	)		(2,580	)		(2,137	)
State and local		(630	)		(425	)		65
Total		(1,746	)		(3,005	)		(2,072	)
Total income tax expense from continuing operations		19,328			18,383			17,017
Discontinued operations:
Operations of discontinued operations:
Current		(38	)		(472	)		(1,733	)
Deferred		25			106			(7	)
Total		(13	)		(366	)		(1,740	)
Gain (loss) on disposal of discontinued operations:
Current		53			193			(812	)
Total income tax expense (benefit) from discontinued operations		40			(173	)		(2,552	)
Total income tax expense	$	19,368		$	18,210		$	14,465

The provision for income taxes attributable to income from continuing operations differed from the amount obtained by applying the federal statutory income tax rate to income from continuing operations before income taxes, as follows (in thousands, except percentages):

	2012			2011			2010
Tax at statutory rate (35%)	$	17,641		$	16,438		$	15,810
State taxes (net of federal benefit)		1,637			2,044			1,875
Business meals and entertainment — non-deductible		717			659			627
Reserves for uncertain tax positions		(432	)		(844	)		(1,284	)
Other, net		(235	)		86			(11	)
Provision for income taxes from continuing operations	$	19,328		$	18,383		$	17,017
Effective income tax rate		38.3	%		39.1	%		37.7	%

The income tax benefits associated with the exercise of non-qualified stock options and restricted stock awards and reflected in additional paid-in-capital were $0.2 million, $0.1 million and $0.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2012 and 2011, were as follows (in thousands):

	2012			2011
Deferred tax assets:
Net operating loss carryforwards .	$	2,430		$	2,807
Allowance for doubtful accounts		2,799			2,484
Employee benefits and compensation		24,635			20,773
Lease costs		3,703			3,667
State tax credit carryforwards		2,357			2,443
Installment sales		—			1,166
Other deferred tax assets		2,243			2,104
Total gross deferred tax assets		38,167			35,444
Less: valuation allowance		(1,237	)		(2,363	)
Total deferred tax assets, net	$	36,930		$	33,081
Deferred tax liabilities:
Property and equipment depreciation	$	—		$	434
Accrued interest		9,633			10,611
Client list amortization		6,425			6,070
Goodwill and other intangibles		12,512			7,897
Contingent purchase price liabilities		2,476			1,818
Other deferred tax liabilities		361			88
Total gross deferred tax liabilities	$	31,407		$	26,918
Net deferred tax asset	$	5,523		$	6,163

CBIZ has established valuation allowances for certain states’ deferred tax assets, primarily related to portions of the state net operating loss (“NOL”) carryforwards and state income tax credit carryforwards at December 31, 2012 and December 31, 2011. The net decrease in the valuation allowance for the year ended December 31, 2012 of $1.1 million consisted of $0.6 million related to changes in the valuation allowance for NOL’s and $0.5 million related to changes in the valuation allowance for state income tax credit carryforwards. The net increase in the valuation allowance for the year ended December 31, 2011 of $0.1 million primarily related to changes in the valuation allowance for state income tax credit carryforwards.

In assessing the realizability of deferred tax assets, management considers all available positive and negative evidence, including projected future taxable income, scheduled reversal of deferred tax liabilities, historical financial operations and tax planning strategies. Based upon review of these items, management believes it is more-likely-than-not that the Company will realize the benefits of these deferred tax assets, net of the existing valuation allowances.

CBIZ and its subsidiaries file income tax returns in the United States, Canada, and most state jurisdictions. In October 2012, the Internal Revenue Service commenced an audit of the Company’s 2010 federal income tax return. CBIZ’s federal income tax returns for years ending prior to January 1, 2009 are no longer subject to examination. With limited exceptions, CBIZ’s state and local income tax returns and non-U.S. income tax returns are no longer subject to tax authority examinations for years ending prior to January 1, 2008 and January 1, 2007, respectively.

The availability of NOL’s and state tax credits are reported as deferred tax assets, net of applicable valuation allowances, in the accompanying consolidated balance sheets. At December 31, 2012, the Company has state net operating loss carryforwards of $52.5 million and state tax credit carryforwards of $2.4 million. The state net operating loss carryforwards expire on various dates between 2013 and 2032 and the state tax credit carryforwards expire on various dates between 2018 and 2026.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2012			2011			2010
Balance at January 1	$	3,979		$	4,794		$	6,103
Additions for tax positions of the current year		212			188			725
Additions for tax positions of prior years		323			103			—
Reclassification from other balance sheet accounts		—			—			—
Reductions for tax positions of prior years		—			(260	)		—
Settlements		—			—			(217	)
Lapse of statutes of limitation		(896	)		(846	)		(1,817	)
Balance at December 31	$	3,618		$	3,979		$	4,794

Included in the balance of unrecognized tax benefits at December 31, 2012 are $2.3 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. The Company believes it is reasonably possible that certain of these unrecognized tax benefits could change in the next twelve months. CBIZ expects reductions in the liability for unrecognized tax benefits of approximately $0.8 million within the next twelve months due to expiration of statutes of limitation. Given the number of years that are currently subject to examination, the Company is unable to estimate the range of potential adjustments to the remaining balance of unrecognized tax benefits at this time.

CBIZ recognizes interest income, interest expense, and penalties related to unrecognized tax benefits as a component of income tax expense. During 2012, the Company accrued interest expense of $0.2 million and, as of December 31, 2012, had recognized a liability for interest expense and penalties of $0.3 million and $0.1 million, respectively, relating to unrecognized tax benefits. During 2011, the Company accrued interest expense of $0.2 million and, as of December 31, 2011, had recognized a liability for interest expense and penalties of $0.3 million and $0.1 million, respectively, relating to unrecognized tax benefits.