Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
The components of income before income taxes are as follows: 
 
Year Ended December 31,
 
2013
 
2012
 
2011
Domestic
$
7,704,867

 
$
29,400,084

 
$
43,255,574

Foreign
(4,945,999
)
 
(4,793,198
)
 
924,531

Income before provision for income taxes
$
2,758,868

 
$
24,606,886

 
$
44,180,105


The components of the provision (benefit) for income taxes are as follows: 
 
Year Ended December 31,
 
2013
 
2012
 
2011
Current:
 

 
 

 
 

   Federal
$
10,113,618

 
$
9,135,447

 
$
(10,073,322
)
   State
3,499,649

 
732,514

 
(273,221
)
   Foreign
370,837

 
177,713

 
(277,157
)
 
13,984,104

 
10,045,674

 
(10,623,700
)
Deferred:
 

 
 

 
 

   Federal
(10,315,323
)
 
(2,586,080
)
 
18,724,198

   State
(2,098,983
)
 
85,387

 
1,826,239

   Foreign
(1,225,117
)
 
(1,298,228
)
 
840,435

 
(13,639,423
)
 
(3,798,921
)
 
21,390,872

 
$
344,681

 
$
6,246,753

 
$
10,767,172


 
The Company’s deferred tax assets and liabilities result primarily from temporary differences between financial reporting and tax recognition of depreciation, reserves, and certain accrued liabilities.
Deferred tax assets and liabilities consist of the following:
 
December 31,
 
2013
 
2012
Deferred tax assets:
 

 
 

Compensation accruals
$
3,121,734

 
$
2,151,789

Reserves
3,110,186

 
2,603,512

Other accruals
2,343,662

 
1,302,684

Net operating losses
345,350

 
267,996

Interest rate swaps
1,073,383

 
3,125,847

Energy efficiency
9,524,077

 
1,225,197

Deferred revenue
1,623,608

 
1,336,827

Gross deferred income tax assets
21,142,000

 
12,013,852

Valuation allowance
(1,952,761
)
 
(2,827,444
)
Total deferred income tax assets
$
19,189,239

 
$
9,186,408

Deferred tax liabilities:
 

 
 

Depreciation
$
(23,504,155
)
 
$
(26,839,863
)
Contract refinancing
(709,773
)
 
(725,328
)
Canada
(443,666
)
 
(949,850
)
United Kingdom
(765,090
)
 
—

Acquisition accounting
(242,326
)
 
(368,878
)
Total deferred income tax liabilities
(25,665,010
)
 
(28,883,919
)
Deferred income tax liabilities, net
$
(6,475,771
)
 
$
(19,697,511
)

 The Company recorded a valuation allowance in the amount of $1,952,761 and $2,827,444 as of December 31, 2013 and 2012, respectively, related to the following items. The Company recorded a deferred tax asset relating to interest rate swaps in the amount of $1,687,586 and $2,559,448 as of December 31, 2013 and 2012, respectively. The deferred tax asset represents a future capital loss which can only be recognized for income tax purposes to the extent of capital gain income.  Although the Company anticipates sufficient future taxable income, it is more likely than not, it will not be of the appropriate character to allow for the recognition of the future capital loss. The Company recorded a deferred tax asset relating to a state net operating loss of $265,175 and $267,996 at one of its subsidiaries as of December 31, 2013 and 2012, respectively. It is more likely than not that the Company will not generate sufficient taxable income at the subsidiary level to utilize the net operating loss.
The provision for income taxes is based on the various rates set by federal and local authorities and is affected by permanent and temporary differences between financial accounting and tax reporting requirements.
The following is a reconciliation of the effective tax rates:
 
Year Ended December 31,
 
2013
 
2012
 
2011
Income before income tax
$
2,758,868

 
$
24,606,886

 
$
44,180,105

Federal statutory tax expense
$
965,604

 
$
8,612,410

 
$
15,463,037

State income taxes, net of federal benefit
200,981

 
817,901

 
1,553,018

Net state impact of deferred rate change
(69,342
)
 
—

 
(259,339
)
Non deductible expenses
2,007,657

 
2,611,576

 
115,629

Stock-based compensation expense
373,398

 
336,564

 
240,557

Energy efficiency preferences
(3,556,074
)
 
(7,032,798
)
 
(6,247,283
)
Foreign items and rate differential
348,891

 
557,104

 
239,692

Miscellaneous
73,566

 
343,996

 
(338,139
)
 
$
344,681

 
$
6,246,753

 
$
10,767,172

Effective tax rate:
 
 
 

 
 

Federal statutory rate expense
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal benefit
7.3
 %
 
3.3
 %
 
3.5
 %
Net state impact of deferred rate change
(2.5
)%
 
—
 %
 
(0.6
)%
Non deductible expenses
72.8
 %
 
10.6
 %
 
0.3
 %
Stock-based compensation expense
13.5
 %
 
1.4
 %
 
0.5
 %
Energy efficiency preferences
(128.9
)%
 
(28.6
)%
 
(14.1
)%
Foreign items and rate differential
12.6
 %
 
2.3
 %
 
0.5
 %
Miscellaneous
2.7
 %
 
1.4
 %
 
(0.7
)%
 
12.5
 %
 
25.4
 %
 
24.4
 %
 
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
 
Year Ended December 31,
 
2013
 
2012
Balance, beginning of year
$
4,900,000

 
$
1,400,000

Additions for prior year tax positions
4,300,000

 
3,500,000

Settlements paid to tax authorities
—

 
—

Reductions of prior year tax positions
—

 
—

Balance, end of year
$
9,200,000

 
$
4,900,000


 At December 31, 2013 and 2012, the Company had approximately $9,200,000 and $4,900,000, respectively, of total gross unrecognized tax benefits. The current year increase in unrecognized tax benefits relates primarily to identification of non deductible expenses. Of the total gross unrecognized tax benefits as of December 31, 2013 and 2012, $5,500,000 and $3,400,000, respectively, (both net of the federal benefit on state amounts) represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.
At December 31, 2013 the Company had state net operating loss carryforwards of approximately $8,500,000, which will expire from 2014 through 2031. The portion of the state net operating loss relating to excess stock option deductions is approximately $100,000. Any tax benefit resulting from excess stock option deductions is recorded as an adjustment to additional paid in capital when realized.
The Company does not accrue U.S. tax for foreign earnings that it considers to be permanently reinvested outside the United States. Consequently, the Company has not provided any U.S. tax on the unremitted earnings of its foreign subsidiaries. As of December 31, 2013, the amount of earnings for which no repatriation tax has been provided was $24,400,000. It is not practicable to estimate the amount of additional tax that might be payable on those earnings if repatriated.
At December 31, 2013 the company had a federal tax credit carryforward of approximately $5,400,000 which will expire at various times through 2033.  The portion of the federal tax credit relating to excess stock option deductions is approximately $5,000,000, the tax benefit of which will be recorded as an adjustment to additional paid in capital when realized.
The tax years 2007 through 2013 remain open to examination by major taxing jurisdictions. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. The (decrease) increase included in tax expense for the years end December 31, 2013, 2012 and 2011 were $(100,000), $300,000 and $(900,000), respectively.