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
The income tax expense consists of (in thousands):
2020 2019 2018
Current:
Federal
$ 13,074  $ 22,342  $ 3,333 
State
4,872  6,913  5,561 
Foreign
3,324  3,470  790 
      
21,270  32,725  9,684 
Deferred:
Federal
1,020  1,753  15,396 
State
(1,217) 387  (2,250)
Foreign
(3,102) (3,345) (558)
(3,299) (1,205) 12,588 
Income tax expense $ 17,971  $ 31,520  $ 22,272 
Income tax expense differs from the amounts computed by applying the US federal statutory tax rate as a result of the following (in thousands):
2020 2019 2018
Income tax at US federal statutory tax rate $ 41,294  $ 19,057  $ 40,092 
State income tax, net of federal benefit
4,776  5,332  3,488 
Foreign rate differential
1,578  1,372  226 
Stock-based compensation
(31,578) 2,352  (19,631)
Nondeductible items
6,957  2,611  1,119 
Research and development
(9,528) (2,379) (4,622)
Uncertain tax positions
2,902  2,714  2,699 
Change in tax rate – other
1,066  —  (508)
Change in valuation allowance
601  530  692 
Other, net
(97) (69) (1,283)
Income tax expense
$ 17,971  $ 31,520  $ 22,272 

The difference between the statutory federal income tax rate and the Company’s effective tax rate in 2020, 2019, and 2018 is primarily attributable to the effect of state income taxes, research and development tax credits, share-based compensation and other non-deductible permanent items.
The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 2020 and 2019 are presented below (in thousands):
2020 2019
Deferred tax assets:
   Net operating loss carryforward
$ 7,659  $ 4,006 
   Tax credit carryforwards
9,046  7,287 
   Lease right of use liabilities
15,946  4,537 
   Stock compensation
11,249  13,419 
   Accruals
12,277  8,543 
     Fixed assets 211  — 
      Gross deferred tax assets
56,388  37,792 
Less: Valuation allowance
(2,509) (1,717)
Deferred tax assets, net of valuation allowance
53,879  36,075 
Deferred tax liabilities:
Fixed assets —  (127)
   Intangibles
(18,995) (15,331)
   Lease right of use assets (15,308) (4,140)
   Federal benefit of state tax deferred tax assets
(722) (876)
      Gross deferred tax liabilities
(35,025) (20,474)
      Deferred tax assets, net
$ 18,854  $ 15,601 

As of December 31, 2020, we have approximately $18.9 million of net deferred tax assets. We recognize valuation allowances on deferred tax assets if, based on the weight of the evidence, we believe that it is more likely than not that some or all of the deferred tax assets will not be realized. We have recorded a valuation allowance of $2.5 million and $1.7 million as of December 31, 2020 and 2019, respectively, against certain state research and development credits.
As of December 31, 2020, we have federal net operating loss carry-forwards of approximately $1.3 million and state net operating loss carry-forwards of $23.8 million, expiring at various times starting in 2023 with certain losses
carried over indefinitely. In addition, as of December 31, 2020, we have foreign net operating loss carry-forwards of $31.6 million that can be carried over indefinitely.
We have no available tax credit carry-forwards for federal income tax purposes at December 31, 2020. We have available tax credit carry-forwards of approximately $8.9 million, net of unrecognized tax benefit for state income tax purposes at December 31, 2020, which can be carried forward to offset future taxable liabilities. Under California law, the California tax credits do not have an expiration date. Under Texas law, Texas R&D credits can be carried forward 20 years, and will begin to expire in 2034.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended December 31, 2020, 2019 and 2018 (in thousands):
Unrecognized Tax Benefits
Balance at December 31, 2017 $ (9,650)
Additions for tax positions of prior years (1,396)
Reduction for tax positions of prior years 275 
Additions for tax positions of the current year (2,418)
Balance at December 31, 2018 $ (13,189)
Additions for tax positions of prior years (1,416)
Reduction for tax positions of prior years 104 
Additions for tax positions of the current year (1,522)
Additions related to acquisitions (523)
Balance at December 31, 2019 $ (16,546)
Additions for tax positions of prior years (661)
Reduction for tax positions of prior years 11 
Additions for tax positions of the current year (2,340)
Balance at December 31, 2020 $ (19,536)

Included in the balance of unrecognized tax benefits as of December 31, 2020, 2019, and 2018 were $19.5 million, $16.6 million, and $13.2 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.
Our policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. During 2020, 2019, and 2018 we recognized income tax expense on interest and penalties of $733,000, $806,000, and $655,000 respectively, in connection with our unrecognized tax benefits. The Company does not expect any material changes in the amount of unrecognized tax benefits within the next twelve months.
We are subject to taxation in the United States, various state jurisdictions, and various foreign jurisdictions. We are subject to income tax examination by US and state tax authorities for the calendar year ended December 31, 2016 and forward. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses and credits were generated and carried forward, and make adjustments up to the amount of the net operating losses and credits utilized in open tax years.
As of December 31, 2020, taxes were not provided for an immaterial amount of cumulative earnings of the foreign subsidiaries as we have invested or expect to invest the undistributed earnings indefinitely. If these earnings are repatriated to the United States, or if we determine that the earnings will be remitted in the foreseeable future, the unremitted earnings could be subject to withholding taxes and certain state taxes. Due to the complexities in the laws of foreign jurisdictions and assumptions that would have to be made, it is not practical to estimate the amount of foreign withholding or state taxes associated with such unremitted earnings.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law in the US to provide certain relief as a result of the COVID-19 pandemic. The CARES Act did not have a material impact on our consolidated financial statements.