v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
14. Income Taxes
The Company’s income tax (benefit) expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in both the United States and foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax (benefit) expense.
The Company is incorporated in the United States and operates in various countries with different tax laws and rates. A portion of the Company’s income or (loss) before taxes and the (benefit from) provision for income taxes are generated from international operations.
Income (loss) before income taxes and equity in losses of unconsolidated investee for the years ended December 31, 2022, 2021 and 2020 is summarized as follows (in thousands):
Year Ended December 31,
202220212020
United States$(1,837)$(15,155)$(40,278)
Foreign5,729 4,653 2,260 
Total income (loss) before income taxes$3,892 $(10,502)$(38,018)
Income tax (benefit) or provision in 2022, 2021 and 2020 is comprised of federal, state, and foreign taxes.
The components of the (benefit from) provision for income taxes are summarized as follows (in thousands):
Year Ended December 31,
202220212020
Current:
Federal$1,672 $44 $(302)
State1,428 439 357 
Foreign1,725 1,345 907 
Total current$4,825 $1,828 $962 
Deferred:
Federal1,905 (13,698)(18,129)
State(360)(1,131)(1,488)
Foreign(476)(124)(106)
Total deferred$1,069 $(14,953)$(19,723)
Provision for (benefit from) income taxes$5,894 $(13,125)$(18,761)
The Company’s actual (benefit from) or provision for tax differed from the amounts computed by applying the Company’s U.S. federal statutory income tax rate to pretax income as a result of the following:
Year Ended December 31,
2022
2021(1)
2020(1)
Income tax at federal statutory rate21.0 %21.0 %21.0 %
State income taxes, net of federal benefit15.9 7.6 3.2 
Rate differential on foreign operations(11.7)(2.7)(0.3)
Foreign taxes(6.9)1.3 (1.0)
Mutual agreement procedure adjustment— 2.1 — 
Prepaid tax ASC 810-1051.9 (0.3)0.8 
Stock-based compensation72.9 86.1 26.8 
Global intangible low-taxed income (“GILTI”)
— (6.5)— 
Non-deductible parking expenses6.9 (1.5)(0.4)
Permanent differences(3.3)(1.2)(1.5)
Other4.7 0.9 0.7 
Change in valuation allowance— 18.2 — 
Effective tax rate151.4 %125.0 %49.3 %
(1) The 2020 and 2021 effective tax rate reconciliations have been updated to conform to the 2022 presentation.
Deferred income tax assets and liabilities consist of the following (in thousands):
December 31,
20222021
Deferred tax assets:
Net operating loss carryforwards$37,290 $55,461 
Tax credits41,934 31,969 
Accruals and reserves9,236 9,521 
Capitalized research expenses22,960 — 
Stock-based compensation12,478 21,886 
Translation adjustment174 173 
UNICAP adjustments10,810 8,715 
ASC 842 Lease Liabilities57,161 41,919 
Other2,727 1,688 
Gross deferred tax assets194,770 171,332 
Valuation allowance(46,693)(37,110)
Total deferred tax assets148,077 134,222 
Deferred tax liabilities:
Depreciation and amortization(29,781)(28,159)
ASC 842 Lease ROU Assets(54,786)(40,645)
Other(257)(1,171)
Total deferred tax liabilities(84,824)(69,975)
Net deferred tax assets$63,253 $64,247 
As of December 31, 2022, the Company had approximately $148.9 million and $93.6 million of federal and state net operating loss (“NOL”) carryforwards, respectively, available to offset future taxable income. The federal NOL has an indefinite carryforward period but is limited to offset 80% of taxable income in the year utilized. The state NOL carryforwards have various carryover periods and will begin to expire as early as 2023. As of December 31, 2022, the Company had federal research and development tax credits of $27.1 million which are generally carried forward for 20 years. The Company maintained a full valuation allowance against its federal research and development tax credit DTAs net of ASC 740-10 reserve.
The Company had California state research and development tax credits of $24.9 million that may be carried forward indefinitely.
The Company generated significant domestic DTAs in recent years, primarily due to the excess tax benefits from stock option exercises and vesting of restricted stock, as well as operating expenditures including research and development. The Company assessed its ability to realize the benefits of its domestic DTAs by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) estimates of future taxable income, (4) respective carryback and/or carryforward periods of tax attributes available to date, and (5) limitations on NOL utilization against taxable income. Despite the domestic pretax loss in the year ended December 31, 2022, the Company determined that it would be in a three-year cumulative adjusted taxable income position, had it not been for the impact of excess tax deductions from stock-based compensation. The Company also measured its current DTA balances against estimates of future income based on objectively verifiable operating results from the Company’s recent history.
The Company considered its projections of future taxable income in conjunction with relevant provisions of the Tax Reform Act, including but not limited to, the indefinite carryforward period for NOL generated in years beginning on or after January 1, 2018. After an evaluation of all available qualitative and quantitative evidence, both positive and negative in nature, the Company concluded that sufficient future taxable income will be generated to realize the benefits of its federal DTAs prior to expiration other than its federal research and development tax credit DTAs. The tax attribute ordering rules provide that NOL must be used to offset taxable income prior to the utilization of tax credits. NOL utilization will be limited to 80% of taxable income, which may provide an opportunity to use a portion of the tax credits. Accordingly, the Company could not assert, at the required more-likely-than-not level of certainty, that it will be able to realize the full benefit of its federal research and development tax credit DTAs, with a limited 20-year carryforward period that will begin to expire in 2026. As a result, the Company maintained a full valuation allowance against its federal research and development tax credit DTAs net of ASC 740-10 reserve as of December 31, 2022. The Company intends to continue maintaining this full valuation allowance until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, due to the change of IRC Section 174 requiring qualified research expenditures to be capitalized and amortized over 5 or 15 years for tax purposes, in the future, the Company may accelerate their NOL utilization. As a consequence, the Company determined there is a reasonable possibility that a portion of this valuation allowance may no longer be needed. The exact timing and amount of the valuation allowance release is highly dependent on the level of taxable income in future years. The Company will continue to closely monitor the need for this valuation allowance in each subsequent reporting period.
For years ended December 31, 2022, 2021 and 2020, a full valuation allowance remains against the Company’s California DTA balances.
The change in the Company’s deferred tax valuation allowance against net DTAs from January 1, 2020 to December 31, 2022, is as follows (in thousands):
Beginning Balance
Additions Charged To Expenses or Other Accounts(1)
Deductions Credited to Expenses or Other Accounts(2)
Ending Balance
For the year ended:
December 31, 2020$21,558 $7,322 $(112)$28,768 
December 31, 202128,768 10,386 (2,044)37,110 
December 31, 202237,110 9,583 — 46,693 
(1) Additions include current year additions charged to expenses and current year build due to increases in net DTAs, return to provision true-ups, and other adjustments.
(2) Deductions include current year releases credited to expenses and current year reductions due to decreases in net DTAs, return to provision true-ups, and other adjustments.
The Company maintains that all foreign earnings, with the exception of a portion of the earnings of its German subsidiary, are permanently reinvested outside the U.S. and therefore deferred taxes attributable to such are not provided for in the Company’s financial statements as of December 31, 2022.
IRC Sections 382 and 383 limit the use of NOL and business credits if there is a change in ownership. In 2009, the Company determined there were changes in ownership in 2004 and 2008, which did not cause any impairment of tax attributes. The NOL and tax credits gained from the 2021 Sixense Acquisition would be subject to IRC Section 382 and 383 limitations.
The Company does not believe such limitations would cause any impairment of those tax attributes. Their full tax benefit is anticipated to be realized in future years.
A reconciliation of the change in the gross unrecognized tax benefits from January 1, 2020 to December 31, 2022, is as follows (in thousands):
December 31,
202220212020
Beginning Balance$9,026 $8,625 $6,075 
Gross increase for tax positions of current year1,842 1,935 2,389 
Gross increase for tax positions of prior years481 216 304 
Gross decrease for tax positions of prior years(112)(1,411)(143)
Settlement with taxing authority— (339)— 
Ending Balance$11,237 $9,026 $8,625 

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2022, 2021 and 2020, the Company had approximately $0.2 million, $0.2 million, and $0.3 million, respectively, of accrued interest and penalties attributable to uncertain tax positions. Included in the $11.2 million balance of unrecognized tax benefits as of December 31, 2022 is $0.9 million of tax benefit that, if recognized, would affect the effective tax rate.
The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to NOL and tax credit carryovers, the tax years ending December 31, 2004 through December 31, 2022 remain subject to examination by federal and state tax authorities. In Australia and Canada, tax years ending December 31, 2009 through December 31, 2022 generally remain subject to examination by tax authorities. In Germany, tax years ending December 31, 2018 through December 31, 2022 remain subject to examination by tax authorities.
The Company does not anticipate significant changes in the balance of gross unrecognized tax benefits over the next 12 months.