CPSI 2017 Annual Report

76 The difference between income taxes at the U.S. federal statutory income tax rate of 35% and those reported in the consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015 are as follows: (In thousands) 2017 2016 2015 Income taxes at U.S. federal statutory rate . . . . . . . . . . . . . . . . . . . . . . $ (4,584) $ 2,795 $ 8,922 Provision-to-return adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433 325 (293) State income tax, net of federal tax effect . . . . . . . . . . . . . . . . . . . . . . . 458 5 944 Domestic production activities deduction . . . . . . . . . . . . . . . . . . . . . . . (280) — (670) Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (393) (349) (414) Uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (1,219) Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,312 — Goodwill impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,520 — — Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,155 — — Deferred impact of tax reform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,890) — — Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (304) — — Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (182) (35) (122) Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,933 $ 4,053 $ 7,148 Our effective tax rates for the years ended December 31, 2017, 2016 and 2015 were (29.17)%, 50.75% and 28.04%, respectively. Our effective tax rate for the year ended December 31, 2017 was significantly impacted by tax shortfalls related to stock-based compensation resulting from our adoption of ASU 2016-09, the non-deductible nature of our goodwill impairment charges, and the effect of recent tax reform legislation. These three factors combined for a net $8.8 million tax expense impact during 2017, affecting the period's effective tax rate by approximately 65.2%. Our effective tax rate for the year ended December 31, 2016 was uncharacteristically high, primarily due to permanent non-deductible acquisition transaction costs of $3.8 million. The significantly reduced effective tax rate for the year ended December 31, 2015 is mostly due to beneficial adjustments recorded during 2015 related to our reserves for uncertain tax positions. The federal returns for tax years 2004 through 2009 had previously been under examination by the IRS, primarily in relation to research credits claimed on those returns. The IRS completed these examinations during 2015, consequently resulting in enhanced clarity regarding the sustainability of our uncertain tax positions for all years. The completion of these examinations prompted a change in our measurement of reserves for uncertain tax positions that benefited our effective tax rate by approximately 4.8% during 2015. We have federal net operating loss carryfowards related to the acquisition of HHI of $82.9 million, $70.5 million, and $53.9 million at January 8, 2016, December 31, 2016, and December 31, 2017, respectively, which expire at various dates from 2028 to 2035. We have state net operating loss carryforwards related to the acquisition of HHI of $47.6 million, $46.5 million, and $37.1 million at January 8, 2016, December 31, 2016, and December 31, 2017, respectively, which expire at various dates from 2018 to 2035. Realization of deferred tax assets associated with the state net operating loss carryforward is dependent upon generating sufficient taxable income prior to their expiration. We believe it is more likely than not that the benefit from certain state NOL carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance on the deferred tax assets related to these state NOL carryforwards of $1.6 million at January 8, 2016 and December 31, 2016 and $1.6 million as of December 31, 2017. 8. STOCK-BASED COMPENSATION The Company's stock-based compensation awards are in the form of restricted stock and performance share awards made pursuant to the Company's 2005 Restricted Stock Plan, 2012 Restricted Stock Plan for Non-Employee Directors, and 2014 Incentive Plan (the "Plans"). Stock-based compensation cost is measured at the grant date based on the fair value of the award, and is recognized as an expense over the employee’s or non-employee director’s requisite service period. As of December 31, 2017, there were a total of 946,183 shares of common stock reserved under the Plans for issuance under future share-based payment arrangements.