(14) Income Taxes
The Company incurred net operating losses and recorded a full valuation allowance against net deferred assets for all periods presented. Accordingly, the Company has not recorded a provision for federal or state income taxes.
The reconciliation between the U.S. statutory income tax rate and the Company’s effective rate consists of the following:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. federal income tax statutory rate |
|
|
35 |
% |
|
|
35 |
% |
|
|
35 |
% |
|
Permanent differences |
|
|
(3 |
)% |
|
|
(4 |
)% |
|
|
(11 |
)% |
|
State tax, net of federal benefit |
|
|
(5 |
)% |
|
|
(1 |
)% |
|
|
(6 |
)% |
|
Changes in valuation allowance for deferred tax assets |
|
|
113 |
% |
|
|
(30 |
)% |
|
|
(11 |
)% |
|
Stock-based compensation |
|
|
— |
% |
|
|
(1 |
)% |
|
|
(8 |
)% |
|
2017 Tax Cuts and Jobs Act |
|
|
(138 |
) |
|
|
— |
% |
|
|
— |
% |
|
Other |
|
|
(2 |
)% |
|
|
1 |
% |
|
|
1 |
% |
|
Effective tax rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
The tax effects of temporary differences between financial statement and tax accounting that gave rise to significant portions of the Company’s deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016 are presented below:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
45,307 |
|
|
$ |
66,276 |
|
|
Stock-based compensation |
|
|
4,719 |
|
|
|
6,140 |
|
|
Tax credit carryforwards |
|
|
308 |
|
|
|
312 |
|
|
Reserves and accruals |
|
|
492 |
|
|
|
398 |
|
|
Intangible assets and amortization |
|
|
56 |
|
|
|
95 |
|
|
Total gross deferred tax assets |
|
|
50,882 |
|
|
|
73,221 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
(4,645 |
) |
|
|
(5,295 |
) |
|
Total deferred tax liabilities |
|
|
(4,645 |
) |
|
|
(5,295 |
) |
|
Total deferred tax assets and liabilities |
|
|
46,237 |
|
|
|
67,926 |
|
|
Valuation allowance |
|
|
(46,237 |
) |
|
|
(67,926 |
) |
|
Net deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (TCJA) tax reform legislation. This legislation makes significant change in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the current rate of 34% to 21% for the year ending 2018. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the 21% rate. This results in a decrease in the Company’s net deferred tax asset and corresponding valuation allowance of $26.7 million. As the Company maintains a full valuation allowance against its net deferred tax asset position in the United States, this revaluation does not result in an income tax expense or benefit in the current period. The provisions of the TCJA related to the one-time mandatory transition tax on deemed repatriation did not have an impact on the Company’s results of operations during the year ended December 31, 2017. The other provisions of the TCJA did not have a material impact on the Company’s 2017 consolidated financial statements.
The net change in the valuation allowance for the year ended December 31, 2017, was a decrease of $21.7 million. The Company has recorded a full valuation allowance against its deferred tax assets due to the uncertainty associated with the utilization of the net operating loss carryforwards and other future deductible items. In assessing the realizability of deferred tax assets, the Company considers all available evidence, historical and prospective, with greater weight given to historical evidence, in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the Company’s deferred tax assets generally is dependent upon generation of future taxable income.
At December 31, 2017, the Company has $194.6 million of net operating losses available to offset future federal income, if any, and which expire on various dates through December 31, 2037.
For the year ended December 31, 2014, the Company performed an analysis pursuant to Internal Revenue Code Section 382, as well as similar state provisions, in order to determine whether any limitations might exist on the utilization of net operating losses and other tax attributes. Based on this analysis, the Company has determined that an ownership change occurred as a result of the June 2014 IPO, resulting in an annual limitation on the use of its net operating losses and other tax attributes as of such date. Net operating losses of $113.2 million were determined to be available. The Company also determined that built-in gains of $42.0 million existed at the date of the ownership change. Built-in gains increase the limitation under the Internal Revenue Code to the extent triggered during the five-year period subsequent to the date of change. Absent the disposition of certain built-in gain assets within the five-year period subsequent to the change in ownership, the entire $42.0 million of net operating losses will expire in June 2019.
At December 31, 2017, the Company has $76.7 million of apportioned net operating losses available to offset future state taxable income, if any, and which begin to expire at various dates between 2018 and 2037.
For each of the years ended December 31, 2017, 2016 and 2015, the Company did not have any material unrecognized tax benefits and thus no interest and penalties related to unrecognized tax benefits were recorded. In addition, the Company does not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months.
The Company files a federal income tax return in the United States and income tax returns in various state and foreign jurisdictions. All tax years are open for examination by the taxing authorities for both federal and state purposes.
The Securities & Exchange Commission staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the tax reform legislation. In accordance with SAB 118, the Company has recognized the provisional tax impacts, outlined above, related to the re-measurement of its deferred income tax assets and liabilities associated with the one-time mandatory transition tax on deemed repatriation. Although the Company does not believe there will be any material adjustments in subsequent reporting periods, the ultimate impact may differ from the provisional amounts, due to, among other things, the significant complexity of the 2017 Tax Act and anticipated additional regulatory guidance that may be issued by the IRS, changes in analysis, interpretations and assumptions the Company has made and actions the Company may take as a result of the 2017 Tax Act.