Provision for Income Taxes
The components of the Company's (benefit from) provision for income taxes from continuing operations consisted of the following:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Current taxes: | | | | | | |
Federal | | $ | (100 | ) | | $ | — |
| | $ | — |
|
Foreign | | 62 |
| | 33 |
| | — |
|
State | | 74 |
| | 112 |
| | 135 |
|
Total current taxes | | $ | 36 |
| | $ | 145 |
| | $ | 135 |
|
Deferred taxes: | | | | | | |
Federal | | $ | 32 |
| | $ | 262 |
| | $ | — |
|
State | | (382 | ) | | 20 |
| | 85 |
|
Total deferred taxes | | (350 | ) | | 282 |
| | 85 |
|
(Benefit from) provision for income taxes | | $ | (314 | ) | | $ | 427 |
| | $ | 220 |
|
The Company had federal net operating loss carryforwards of approximately $168.1 million and $129.5 million at December 31, 2017 and 2016, respectively, which will expire at various dates beginning in 2026, if not utilized. The Company also held state tax credits of $0.5 million and $0.2 million for the years ended December 31, 2017 and 2016, respectively, federal alternative minimum tax credits of $0.1 million for each of the years ended December 31, 2017 and 2016, and federal R&D tax credits of $1.2 million and zero for the years ended December 31, 2017 and 2016, respectively. The state tax credits will expire in 2026 if not utilized, the federal R&D tax credits will expire at various dates beginning in 2027, if not utilized, and the federal alternative minimum tax credits have an indefinite carryforward period.
Utilization of the net operating losses and credit carryforwards may be subject to a substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses and credit carryforwards before utilization.
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 taxes consisted of the following: |
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Deferred tax assets: | | | | |
NOL and credit carryforwards | | $ | 40,716 |
| | $ | 29,034 |
|
Deferred revenue | | 8,216 |
| | 9,910 |
|
Accrued expenses and other | | 6,802 |
| | 9,829 |
|
Stock-based compensation | | 4,615 |
| | 4,598 |
|
Total deferred tax assets | | 60,349 |
| | 53,371 |
|
Deferred tax liabilities: | | | | |
Deferred expenses | | (6,198 | ) | | (8,337 | ) |
Depreciation and amortization | | (1,426 | ) | | (2,887 | ) |
Total deferred tax liabilities | | (7,624 | ) | | (11,224 | ) |
Deferred tax assets less tax liabilities | | 52,725 |
| | 42,147 |
|
Less: valuation allowance | | (52,629 | ) | | (42,401 | ) |
Net deferred tax asset (liability) | | $ | 96 |
| | $ | (254 | ) |
The Company has established a valuation allowance due to uncertainties regarding the realization of deferred tax assets based on the Company's lack of earnings history. During 2017, the valuation allowance increased by approximately $20.4 million due to continuing operations.
The Company's benefit from (provision for) income taxes attributable to continuing operations differs from the expected tax benefit amount computed by applying the statutory federal income tax rate of 34% to income before taxes for the years ended December 31, 2017, 2016 and 2015 primarily as a result of the following:
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Income tax at U.S. statutory rate | | 34.0 | % | | 34.0 | % | | 34.0 | % |
Effect of: | | | | | | |
Increase in deferred tax valuation allowance | | (77.1 | ) | | (36.3 | ) | | (34.5 | ) |
Stock compensation | | 32.7 |
| | — |
| | — |
|
R&D Credit | | 4.7 |
| | — |
| | — |
|
State taxes, net of federal benefit | | 6.2 |
| | 1.7 |
| | 1.6 |
|
Tax impact of federal law change | | 1.2 |
| | — |
| | — |
|
Other permanent items | | (0.5 | ) | | (0.6 | ) | | (2.0 | ) |
Income tax benefit (provision) effective rate | | 1.2 | % | | (1.2 | )% | | (0.9 | )% |
The Company files income tax returns in the U.S. federal jurisdiction and several state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years before 2014. Operating losses generated in years prior to 2014 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized. The tax years 2014 through 2017 remain open to examination by all the major taxing jurisdictions to which the Company is subject, though the Company is not currently under examination by any major taxing jurisdiction.
The Company did not have any uncertain tax positions as of December 31, 2017, 2016 and 2015. The Company's policy is to accrue interest and penalties related to uncertain tax positions as a component of income tax expense. For the years ended December 31, 2017, 2016 and 2015, the Company did not recognize any interest or penalties.
The Tax Cuts and Jobs Act, or the Tax Act, was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%, requiring companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, the Company does not have any foreign subsidiaries and the international aspects of the Tax Act are not applicable.
In connection with the initial analysis of the impact of the Tax Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The remeasurement of the Company's deferred tax balance was primarily offset by application of its valuation allowance. The Company is still analyzing certain aspects of the Tax Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. Where the Company has been able to make reasonable estimates of the effects for which its analysis is not yet complete, the Company has recorded provisional amounts related to the remeasurement of the deferred tax balance as a tax benefit of $0.2 million. Where the Company has not yet been able to make reasonable estimates of the impact of certain elements, the Company has not recorded any amounts related to those elements and has continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect immediately prior to the enactment of the Tax Act.