10. Income Taxes
The domestic and foreign components of income (loss) before income taxes are as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
United States |
|
$ |
15,543 |
|
|
$ |
8,919 |
|
|
$ |
(2,540 |
) |
|
Foreign |
|
|
294 |
|
|
|
26 |
|
|
|
— |
|
|
Income (loss) before income taxes |
|
$ |
15,837 |
|
|
$ |
8,945 |
|
|
$ |
(2,540 |
) |
The provision for (benefit from) income taxes contained the following components:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current provision: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
3,262 |
|
|
$ |
1,440 |
|
|
$ |
(276 |
) |
|
State |
|
|
431 |
|
|
|
223 |
|
|
|
21 |
|
|
Foreign |
|
|
62 |
|
|
|
3 |
|
|
|
— |
|
|
|
|
|
3,755 |
|
|
|
1,666 |
|
|
|
(255 |
) |
|
Deferred (benefit) provision: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(755 |
) |
|
|
880 |
|
|
|
(544 |
) |
|
State |
|
|
(343 |
) |
|
|
(98 |
) |
|
|
(105 |
) |
|
Foreign |
|
|
(19 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
(1,117 |
) |
|
|
782 |
|
|
|
(649 |
) |
|
Income tax (benefit) provision |
|
$ |
2,638 |
|
|
$ |
2,448 |
|
|
$ |
(904 |
) |
The Company's effective tax rates for the years ending December 31, 2017 and 2016 are less than the U.S. federal statutory rate primarily due to federal and state research and development credits, excess tax deductions related to stock-based compensation awards and tax deductions for fees incurred during the IPO process. The Company’s effective tax rate for the year ended December 31, 2015 is greater than the U.S. federal statutory rate primarily due to state income taxes.
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. federal taxes at statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
34.0 |
% |
|
State taxes, net of federal benefit |
|
|
3.1 |
|
|
|
4.5 |
|
|
|
3.6 |
|
|
Nondeductible expenses |
|
|
1.2 |
|
|
|
2.0 |
|
|
|
(1.4 |
) |
|
Tax deductible IPO costs |
|
|
(9.3 |
) |
|
|
— |
|
|
|
— |
|
|
Stock compensation |
|
|
(4.4 |
) |
|
|
— |
|
|
|
— |
|
|
Foreign rate differential |
|
|
(0.4 |
) |
|
|
(0.1 |
) |
|
|
— |
|
|
Credits |
|
|
(9.0 |
) |
|
|
(15.0 |
) |
|
|
— |
|
|
Other |
|
|
0.5 |
|
|
|
1.0 |
|
|
|
(0.6 |
) |
|
Total |
|
|
16.7 |
% |
|
|
27.4 |
% |
|
|
35.6 |
% |
The approximate income tax effect of each type of temporary difference and carryforward as of December 31, 2017 and 2016 is as follows:
|
|
|
As of December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Credit carryforwards |
|
$ |
166 |
|
|
$ |
141 |
|
|
Stock-based compensation |
|
|
1,301 |
|
|
|
67 |
|
|
Landlord allowance on leasehold improvements |
|
|
1,078 |
|
|
|
1,468 |
|
|
Deferred rent |
|
|
583 |
|
|
|
968 |
|
|
Accruals and reserves |
|
|
606 |
|
|
|
612 |
|
|
|
|
|
3,734 |
|
|
|
3,256 |
|
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
|
Fixed assets |
|
|
(2,909 |
) |
|
|
(3,548 |
) |
|
|
|
|
(2,909 |
) |
|
|
(3,548 |
) |
|
Net deferred tax assets (liabilities) |
|
$ |
825 |
|
|
$ |
(292 |
) |
The Company uses the asset and liability method to account for income taxes in accordance with ASC 740, Income Taxes. Under this method, deferred income taxes are recognized for the future tax consequences of differences between the tax and financial accounting bases of assets and liabilities at each reporting period. Deferred income taxes are based on enacted tax laws and statutory tax rates applicable to the period in which these differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 22, 2017. Among other things, the TCJA reduces the U.S. federal corporate tax rate from 35% to 21%, requires 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. As of December 31, 2017, the Company recognized a provisional amount of $187 which is included as a component of income tax expense from continuing operations.
The Company re-measured certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. However, the Company is still examining certain aspects of the TCJA and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of the Company’s deferred tax balance was a tax expense of $151.
The one-time transition tax is based on the Company’s total post-1986 earnings and profits (“E&P”) for which the Company has previously deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition tax liability of $36 for its foreign subsidiaries, resulting in an increase of income tax provision of $36. The Company has not yet completed its calculation of the total post-1986 foreign E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. As of December 31, 2017, foreign earnings, which were not significant, have been retained indefinitely by the Company’s foreign subsidiaries for reinvestment. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to withholding taxes payable to the various foreign countries.
The Company has not provided a valuation allowance against its net deferred tax assets at December 31, 2017 and 2016. Based upon the level of historical U.S. earnings and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.
As of December 31, 2017, the Company has state tax credit carryforwards of $227, available to reduce future tax liabilities that expire at various dates through 2032. Net operating loss carryforwards arising in taxable years ending after December 31, 2017 are no longer subject to expiration under the Internal Revenue Code of 1986, as amended (the “Code”). Utilization of the tax credit carryforwards may be subject to an annual limitation due to ownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the Code, or Section 382, as well as similar state provisions. Ownership changes may limit the amount of tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of 5% stockholders in the stock of a corporation by more than 50% in the aggregate over a three-year period.
The Company previously adopted the provision for uncertain tax positions under ASC 740, Income Taxes. The adoption did not have an impact on the Company’s retained earnings balance. At December 31, 2017 and 2016, the Company had no recorded liabilities for uncertain tax positions and had no accrued interest or penalties related to uncertain tax positions.
The Company and its subsidiaries are subject to various U.S. federal, state, and foreign income taxes. The Company is currently open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions for the tax years ended 2014 through 2017. Currently, there are no income tax audits in process.