Income Taxes
Tax Cuts and Jobs Act
In December 2017, the Tax Cuts and Jobs Act, or the Tax Act ("TCJA"), was signed into law. Among other things, the Tax Act permanently lowers the corporate federal income tax rate to 21% from the existing maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate federal income tax rate to 21%, U.S. GAAP requires companies to revalue their deferred tax assets and deferred tax liabilities as of the date of enactment, with the resulting tax effects accounted for in the reporting period of enactment. This revaluation resulted in a provision of $10,609 to income tax expense in continuing operations and a corresponding reduction the Company's valuation allowance. There is no impact, therefore, to the Company's income statement for the year ended December 31, 2017 as a result of the reduction in federal income tax rates. The Company's preliminary estimate of the TCJA and the remeasurement of its deferred tax assets and liabilities is subject to the finalization of management's analysis related to certain matters, such as developing interpretations of the provisions of the TCJA, changes to certain estimates and the filing of its tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting TCJA may require further adjustments and changes to the Company's estimates. The final determination of the TCJA and the remeasurement of the Company's deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the TCJA.
Income Taxes and Deferred Tax Assets and Liabilities
The components of loss from continuing operations before provision for income taxes consist of the following:
|
| | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 |
Domestic | $ | (9,523 | ) | | $ | (10,318 | ) |
Foreign | 126 |
| | 48 |
|
Loss before taxes | $ | (9,397 | ) | | $ | (10,270 | ) |
Significant components of the Company's net deferred tax assets are as follows:
|
| | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 |
Deferred Tax Assets: | | | |
Net operating loss carryforward | $ | 20,490 |
| | $ | 25,182 |
|
Capitalization of research and development expense | 1,606 |
| | 2,634 |
|
Credit carryforwards | 2,493 |
| | 2,048 |
|
Depreciation | 990 |
| | 1,505 |
|
Stock compensation | 1,035 |
| | 2,414 |
|
Other temporary differences | 794 |
| | 1,202 |
|
Total deferred tax assets. | 27,408 |
| | 34,985 |
|
Valuation allowance | (27,408 | ) | | (34,985 | ) |
Net deferred tax assets | — |
| | — |
|
Deferred Tax Liabilities: | | | |
Other temporary differences | — |
| | — |
|
Net deferred taxes | $ | — |
| | $ | — |
|
The reported amount of income tax expense for the years differs from the amount that would result from applying domestic federal statutory tax rates to pretax losses primarily because of changes in valuation allowance and due to a reduction in deferred tax assets as a result of the rate reduction under TCJA.
Tax Rate
The items accounting for the difference between the income tax benefit computed at the federal statutory rate of 34% and the provision for income taxes were as follows:
|
| | | | | |
| Year Ended December 31, |
| 2017 | | 2016 |
Federal income tax at statutory federal rate | 34.0 | % | | 34.0 | % |
State taxes | 4.9 | % | | 5.0 | % |
Permanent differences | (2.3 | )% | | (1.9 | )% |
Tax credits | 3.7 | % | | 7.4 | % |
Federal rate change under tax reform | (112.9 | )% | | 0.0 | % |
State rate change on deferred balances | 0.1 | % | | (0.6 | )% |
Impact of ownership change | 0.0 | % | | (6.1 | )% |
Stock compensation | (12.7 | )% | | (22.9 | )% |
Other | 1.2 | % | | (0.5 | )% |
Change in valuation allowance | 84.0 | % | | (3.7 | )% |
Total | 0.0 | % | | 10.7 | % |
Tax Attributes
At December 31, 2017, the Company had net operating loss carryforwards (NOLs) for federal, state and international income tax purposes of approximately $72,941, $68,028 and $2,702, respectively. The Company's existing federal and state net operating loss carryforwards will begin to expire on various dates through 2037. The Company also had available research and development and investment tax credits for federal and state income tax purposes of approximately $1,282 and $787, respectively. These federal and state research and development credits will begin to expire on various dates through 2037. Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards and research and development credits. Under the applicable accounting standards, management has considered the Company's history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets.
Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company completed an evaluation of its ownership changes through December 31, 2015 and determined that an ownership change occurred on August 22, 2014 in connection with an equity offering. As a consequence of this ownership change, the Company's NOLs, tax credit carryforwards and other tax deductions allocable to the tax periods preceding the ownership change became subject to limitation under Section 382. The Company has reduced its associated deferred tax assets accordingly. The Company has not yet completed an evaluation of ownership changes for the years 2016 and 2017. To the extent an ownership change occurs in the future, the net operating loss, credit carryforwards and other deferred tax assets may be subject to further limitations.
Other
The tax years 2014 through 2017 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the U.S. The statute of limitations for net operating losses utilized in future years will remain open beginning in the year of utilization.
The Company's policy is to record estimated interest and penalties related to uncertain tax positions as income tax expense. As of December 31, 2017 and 2016, the Company had no accrued interest or penalties recorded related to uncertain tax positions.
For the year ended December 31, 2016, the Company recognized tax expense of $1,097 as a result of net income recorded for discontinued operations. This tax expense is offset in consolidation by a tax benefit of $1,097 as a result of the Company's net loss from continuing operations during that tax year.
No additional provision has been made for U.S. income taxes related to the undistributed earnings of the wholly-owned subsidiaries of Yield10 Bioscience, Inc. or for unrecognized deferred tax liabilities for temporary differences related to investments in subsidiaries as the amounts are not significant. As such, earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or the Company has concluded that no additional tax liability will arise as a result of the distribution of such earnings. A liability could arise if amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practical to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investment in subsidiaries. Unremitted earnings at December 31, 2017 and December 31, 2016 approximated $482 and $346, respectively. As a result of TCJA, the Company is reviewing its position but does not believe there will be a material impact. The Company will finalize its analysis by the fourth quarter of 2018.