Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

Our income tax expense consisted of the following:
 
For the Years Ended December 31,
 
2012
 
2011
 
2010
Current taxes:
 
 
 
 
 
Federal
$
—

 
$
—

 
$
—

State
1,319

 
3,229

 
942

Foreign
2,265

 
2,741

 
1,370

Total current taxes
3,584

 
5,970

 
2,312

Deferred taxes:
 
 

 

Federal
(2,729,823
)
 
3,991

 
4,163

State
(271,995
)
 
4,273

 
(1,855
)
Total deferred taxes
(3,001,818
)
 
8,264

 
2,308

Total income tax (benefit) expense
$
(2,998,234
)

$
14,234


$
4,620



The following table indicates the significant elements contributing to the difference between the federal tax (benefit) expense at the statutory rate and at our effective rate:
 
For the Years Ended December 31,
 
2012
 
2011
 
2010
Federal tax expense, at statutory rate
$
166,064

 
$
154,418

 
$
16,678

State income tax expense, net of federal benefit
16,606

 
15,751

 
1,620

State income rate changes
2,251

 
3,851

 
(2,252
)
Non-deductible expenses
477

 
457

 
4,130

Change in valuation allowance
(3,195,651
)
 
(166,452
)
 
(21,749
)
Other, net
12,019

 
6,209

 
6,193

Income tax (benefit) expense
$
(2,998,234
)
 
$
14,234

 
$
4,620



The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are represented below:
 
For the Years Ended December 31,
 
2012
 
2011
Deferred tax assets:
 
 
 
Net operating loss carryforwards
$
2,493,239

 
$
3,025,621

GM payments and liabilities
80,742

 
194,976

Deferred revenue
511,700

 
410,812

Severance accrual
46

 
21

Accrued bonus
23,798

 
17,296

Expensed costs capitalized for tax
26,569

 
35,227

Loan financing costs
428

 
1,575

Investments
39,915

 
40,880

Stock based compensation
64,636

 
89,862

Other
34,705

 
42,924

Total deferred tax assets
3,275,778

 
3,859,194

Deferred tax liabilities:

 

Depreciation of property and equipment
(185,007
)
 
(405,892
)
FCC license
(772,550
)
 
(781,742
)
Other intangible assets
(165,227
)
 
(188,988
)
Other
—

 
(189
)
Total deferred tax liabilities
(1,122,784
)
 
(1,376,811
)
Net deferred tax assets before valuation allowance
2,152,994

 
2,482,383

Valuation allowance
(9,835
)
 
(3,360,740
)
Total net deferred tax asset (liability)
$
2,143,159

 
$
(878,357
)

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences can be carried forward under tax law. Management's evaluation of the realizability of deferred tax assets considers both positive and negative evidence, including historical financial performance, scheduled reversal of deferred tax assets and liabilities, projected taxable income and tax planning strategies in making this assessment. The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified.
For the year ended December 31, 2012, our deferred tax asset valuation allowance decreased by $3,350,905 in response to cumulative positive evidence in 2012 which outweighed the historical negative evidence from our emergence from cumulative losses in recent years and updated assessments regarding that it was more likely than not that our deferred tax assets will be realized.  Realization of the net deferred tax assets is dependent on our generation of sufficient future taxable income to obtain benefit from the reversal of temporary differences, primarily related to gross net operating loss carryforwards of approximately $6,571,519. In addition to the gross book net operating loss carryforwards, we have $599,153 of excess share-based compensation deductions that will not be realized until we utilize $6,571,519 of net operating losses, resulting in an approximate gross operating loss carryforward on our tax return of $7,170,672 or $2,493,239 tax effected. As of December 31, 2012, the deferred tax asset valuation allowance of $9,835 relates to deferred tax assets that are not likely to be realized due to certain state net operating loss limitations. These net operating loss carryforwards expire on various dates beginning in 2017 and ending in 2028.
There is no current U.S. federal income tax provision, as all federal taxable income was offset by utilizing U.S. federal net operating loss carryforwards. The state income tax provision is primarily related to taxable income in certain states that have suspended the ability to use net operating loss carryforwards. The foreign income tax provision is primarily related to foreign withholding taxes related to royalty income between us and our Canadian affiliate.
As of December 31, 2012 and 2011, the gross liability for income taxes associated with uncertain state tax positions was $1,432, respectively. If recognized, $1,432 of unrecognized tax benefits would affect the effective tax rate. This liability is recorded in Other long-term liabilities. No penalties have been accrued for. We do not currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2012 will significantly increase or decrease during the twelve-month period ending December 31, 2013; however, various events could cause our current expectations to change in the future. Should our position with respect to the majority of these uncertain tax positions be upheld, the effect would be recorded in our consolidated statements of comprehensive income as part of the income tax provision. Our policy is to recognize interest and penalties accrued on uncertain tax positions as part of income tax expense. We have recorded interest expense of $55 and $92 for the years ended December 31, 2012 and 2011, respectively, related to our unrecognized tax benefits presented below.
Changes in our uncertain income tax positions, from January 1 through December 31 are presented below:
 
2012
 
2011
Balance, beginning of year
$
1,432

 
$
942

Additions for tax positions from prior years
—

 
490

Balance, end of year
$
1,432

 
$
1,432



We have federal and certain state income tax audits pending. We do not expect the ultimate disposition of these audits to have a material adverse affect on our financial position or results of operations.