The following table reconciles the statutory federal income tax rate to the Company’s effective income tax rate for the years ended December 31, 2007, 2006 and 2005:
2007 Income taxes at federal statutory rate State income taxes, net of federal tax Domestic production activity deduction Resolution of tax contingency Goodwill Deferred tax asset allowance Other Effective tax rate 35.0% 3.2 – 2.0 (1.4) (17.8) (0.4) 20.6% 2006 35.0% 3.2 (0.9) (1.0) – – 0.2 36.5% 2005 35.0% 3.2 (0.8) – – – 0.6 38.0%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31 were as follows:
(in thousands) DEFERRED TAX ASSETS Warranty, legal and other accruals Employee benefits Noncash charge for impairment of long-lived assets State net operating loss carryforwards Other Total Valuation allowance Total deferred tax assets DEFERRED TAX LIABILITIES Deferred recognition of income and gains Capitalized expenses Other Total deferred tax liabilities NET DEFERRED TAX ASSET $ 2007 23,801 48,574 187,385 1,755 4,435 265,950 (75,166) 190,784 (2,224) (27,605) (2,890) (32,719) $ 158,065 $ $ 2006 29,029 51,427 23,105 – 8,411 111,972 – 111,972 (4,037) (19,183) (4,553) (27,773) 84,199
The Company’s expense for income taxes for the years ended December 31, 2007, 2006 and 2005, is summarized as follows:
(in thousands) CURRENT EXPENSE (BENEFIT) Federal State Total current expense (benefit) DEFERRED EXPENSE (BENEFIT) Federal State Total deferred expense (benefit) Total expense (benefit) $ $ 2007 (14,323) 1,617 (12,706) (84,872) 11,006 (73,866) (86,572) $ $ 2006 206,635 32,799 239,434 (27,848) (4,420) (32,268) 207,166 $ $ 2005 243,220 36,852 280,072 (5,274) (799) (6,073) 273,999
The Company implemented the provisions of FIN 48 effective January 1, 2007. As of the date of adoption, the Company’s net liability for unrecognized tax benefits was $11.4 million, which represented $15.6 million of gross unrecognized tax benefits less $4.2 million of indirect tax benefits. The Company accounts for interest and penalties on unrecognized tax benefits through its provision for income taxes. As of December 31, 2007, the Company’s liability for gross unrecognized tax benefits was $11.8 million, of which $8.3 million, if recognized, will affect the Company’s effective tax rate. The Company had $4.4 million and $5.8 million in accrued interest and penalties at January 1 and December 31, 2007, respectively. The Company estimates that, within 12 months, $2.4 million of gross state unrecognized tax benefits will reverse due to the anticipated expiration of time to assess tax.
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