11. Income Taxes
No provision for U.S. federal or state income taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the Company’s net deferred income tax assets consist of the following (in thousands):
|
|
|
December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Deferred tax asset (liability) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
27,999 |
|
|
$ |
23,391 |
|
|
$ |
14,119 |
|
|
Non-deductible accrued expenses |
|
|
248 |
|
|
|
358 |
|
|
|
230 |
|
|
Deferred rent |
|
|
49 |
|
|
|
1 |
|
|
|
4 |
|
|
Deferred revenue |
|
|
38 |
|
|
|
69 |
|
|
|
77 |
|
|
Stock compensation expense |
|
|
387 |
|
|
|
101 |
|
|
|
88 |
|
|
Depreciation differences |
|
|
(18 |
) |
|
|
(13 |
) |
|
|
(28 |
) |
|
Federal tax credits |
|
|
3,437 |
|
|
|
1,232 |
|
|
|
850 |
|
|
State tax credits |
|
|
524 |
|
|
|
301 |
|
|
|
262 |
|
|
Charitable contributions |
|
|
6 |
|
|
|
6 |
|
|
|
3 |
|
|
Valuation allowance |
|
|
(32,670 |
) |
|
|
(25,446 |
) |
|
|
(15,605 |
) |
|
Net deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
A reconciliation of the statutory tax rates and the effective tax rates is as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. federal tax rate |
|
|
34.00 |
% |
|
|
34.00 |
% |
|
|
34.00 |
% |
|
State tax rate |
|
|
2.42 |
|
|
|
3.79 |
|
|
|
4.54 |
|
|
Permanent difference and other |
|
|
(2.84 |
) |
|
|
(1.98 |
) |
|
|
(1.26 |
) |
|
Tax credit |
|
|
3.97 |
|
|
|
1.62 |
|
|
|
2.66 |
|
|
Valuation allowance |
|
|
(12.42 |
) |
|
|
(37.43 |
) |
|
|
(39.94 |
) |
|
Impact of federal rate change |
|
|
(25.13 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
In December 2017, the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law. The 2017 Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 34% to 21%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The 2017 Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property. The Company has not completed its determination of the accounting implications of the 2017 Tax Act on its tax accruals. However, the Company has reasonably estimated the effects of the 2017 Tax Act and recorded provisional amounts in its financial statements as of December 31, 2017. The Company recorded a provisional tax expense of the impact of the 2017 Tax Act of approximately $14.9 million. This amount is primarily comprised of the re-measurement of federal deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate to 21% from 34%. As the Company completes its analysis of the 2017 Tax Act, collects and prepares necessary data, and interprets any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may make adjustments to the provisional amounts. Those adjustments may materially impact the Company’s provision for income taxes in the period in which the adjustments are made. Based on the Company’s history of net operating losses, any benefit that is being or will be derived from the 2017 Tax Act will be offset by a full valuation allowance, as discussed further below.
Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Due to the Company’s history of operating losses, the deferred tax assets arising from the aforementioned future tax benefits are currently not likely to be realized and, accordingly, are offset by a full valuation allowance. The income tax provision varies from the expected provision determined by applying the federal statutory income tax rate to income (loss). The difference in the expected provision, as determined by applying the federal statutory income tax rate to income (loss) is primarily due to the increase in the deferred income tax valuation allowance of $7.2 million, $9.8 million and $7.0 million for the years ended December 31, 2017, 2016 and 2015, respectively, and in 2017, the impact of the federal rate change because of the 2017 Tax Act.
As of December 31, 2017, the Company had net deferred tax assets primarily related to net operating loss carryforwards of $28.0 million, which expire through 2037. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The effect of an ownership change could be an imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before the change.
The U.S. federal statute of limitations remains open for the periods from inception and forward. The Company has not been the subject of examination by the taxing authorities.
The Company has no uncertain tax positions.