Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Our loss before provision for (benefit from) income taxes was as follows (in thousands): 
  Year Ended December 31,
  2020 2019 2018
United States $ (23,452) $ (11,751) $ (10,653)
Foreign (219) (167) (262)
Loss before provision for income taxes $ (23,671) $ (11,918) $ (10,915)
The tax provision (benefit from) for the years ended December 31, 2020, 2019 and 2018 consists primarily of taxes attributable to foreign operations. The components of the provision for income taxes are as follows (in thousands): 
  Year Ended December 31,
  2020 2019 2018
Current provision (benefit):
State $ $ $
Foreign 342  18  (13)
Total current provision (benefit) 347  23  (8)
Deferred provision (benefit):
Foreign (8) (6) (29)
Total deferred provision (benefit) (8) (6) (29)
Provision for (benefit from) income taxes $ 339  $ 17  $ (37)
Reconciliation of the provision for (benefit from) income taxes calculated at the statutory rate to our provision for (benefit from) income taxes is as follows (in thousands): 
  Year Ended December 31,
  2020 2019 2018
Tax benefit at federal statutory rate $ (4,971) $ (2,503) $ (2,292)
State taxes (465) (1,120) 222 
Research and development credits (811) (693) (499)
Foreign operations taxed at different rates (17)
Stock-based compensation 132  (3,606) (2,587)
Other nondeductible items 69  505  (3)
Executive compensation 24  872  838 
Change in valuation allowance 6,359  6,561  4,301 
Provision for (benefit from) income taxes $ 339  $ 17  $ (37)
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
Significant components of our deferred tax assets and liabilities are as follows (in thousands): 
  December 31,
  2020 2019
Deferred tax assets:
Net operating losses $ 72,530  $ 68,422 
Credits 9,914  8,494 
Deferred revenues 1,080  468 
Stock-based compensation 2,576  2,338 
Reserves and accruals 1,914  1,545 
Depreciation 1,115  1,358 
Intangible assets 1,714  2,159 
Capital losses 25  26 
Unrealized gain/loss 400  406 
Lease liability 5,626  5,974 
Other assets 100  92 
Total deferred tax assets: 96,994  91,282 
Valuation allowance (92,126) (85,768)
Deferred tax liabilities:
Right-of-use assets (4,848) (5,514)
Other (52) (40)
Total deferred tax liabilities: (4,900) (5,554)
Net deferred tax liabilities $ (32) $ (40)

ASC 740 requires that the tax benefit of NOLs, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a valuation allowance against our deferred tax assets. Accordingly, the net deferred tax assets in all our jurisdictions have been fully reserved by a valuation allowance. The net valuation allowance increased by $6.4 million during the year ended December 31, 2020, increased by $6.5 million during the year ended December 31, 2019, and increased by $5.2 million during the year ended December 31, 2018. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.
The following table sets forth our federal, state and foreign NOL carryforwards and federal research and development tax credits as of December 31, 2020 (in thousands): 
  December 31, 2020
  Amount
Expiration
Years
Net operating losses, federal $ 224,475  2022-2037
Net operating losses, federal $ 82,931  Do not expire
Net operating losses, state $ 127,317  2028-2040
Tax credits, federal $ 10,654  2022-2040
Tax credits, state $ 11,977  Do not expire
Net operating losses, foreign $ 778  Various
Current U.S. federal and California tax laws include substantial restrictions on the utilization of NOLs and tax credit carryforwards in the event of an ownership change of a corporation. Accordingly, the Company's ability to utilize NOLs and tax credit carryforwards may be limited as a result of such ownership changes. We performed an analysis in 2020 and determined that there was not a limitation that would result in the expiration of carryforwards before they are utilized.
Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets.
In 2014, we determined that the undistributed earnings of our India subsidiary will be repatriated to the United States, and accordingly, we have provided a deferred tax liability totaling $0.1 million as of December 31, 2020, for local taxes that would be incurred upon repatriation. We have not provided for U.S. federal and state income taxes on all of the remaining non-U.S. subsidiaries’ undistributed earnings as of December 31, 2020 as the remaining foreign jurisdictions are in an accumulative loss position.
We apply the provisions of ASC 740 to account for uncertain income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): 
  December 31,
  2020 2019 2018
Balance at beginning of year $ 11,330  $ 9,980  $ 9,422 
Additions based on tax positions related to current year 1,357  1,362  1,087 
Reductions to tax provision of prior years (4) (12) (529)
Balance at end of year $ 12,683  $ 11,330  $ 9,980 
We recognize interest and penalties as a component of our income tax expense. Total interest and penalties recognized in the consolidated statement of operations was $39 thousand, $32 thousand and $37 thousand, respectively, in 2020, 2019 and 2018. Total penalties and interest recognized in the balance sheet was $0.4 million in 2020 and 2019. The total unrecognized tax benefits that, if recognized currently, would impact our company’s effective tax rate were $0.3 million as of December 31, 2020 and 2019. We do not expect any material changes to our uncertain tax positions within the next 12 months. We are not subject to examination by United States federal or state tax authorities for years prior to 2002 and foreign tax authorities for years prior to 2013.
In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided a measurement period of up to one year from the enactment date of the Tax Cuts and Jobs Act of 2017 (the “Act”) for companies to complete the accounting for the Tax Act and its related impacts. In 2018, the Company completed its accounting for the Tax Act. The income tax effects of the Tax Act for which the accounting was completed in 2018 include: the impact of the Transition Tax, the revaluation of deferred tax assets and liabilities to reflect the 21% corporate tax rate, the impact to the aforementioned items on state income taxes. We completed our accounting for the income tax effects under the Tax Cuts and Jobs Act (the “Act”) that are relevant to the Company and required to be recorded and disclosed pursuant to ASC 740. Accordingly, any and all provisional amounts previously recorded in accordance with SAB 118 were adjusted to reflect their final amounts.
Beginning in 2018, the global intangible low-taxed income (“GILTI”) provisions in the Tax Act required us to include, in our U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Per guidance issued by the FASB, companies can either account for deferred taxes related to GILTI or treat tax arising from GILTI as a period cost. Both are acceptable methods subject to an accounting policy election. At December 31, 2018, we finalized our policy and elected to use the period cost method for GILTI. In 2020, we did not incur any GILTI inclusion as our foreign subsidiaries generated losses.
The BEAT provisions in the Tax Act eliminated the deduction of certain base-erosion payments made to related foreign corporations and impose a minimum base erosion anti-abuse tax if greater than regular tax. In 2020, our company was not subject to BEAT as it did not meet the requirements to be subject to BEAT.