Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Deferred income taxes are accounted for using the balance sheet approach, which requires recognition of deferred tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities, as measured by enacted state and federal tax rates. Deferred tax assets and deferred tax liabilities are as follows:
(in thousands) December 31,
2021		 December 31,
2020
Deferred tax assets:
Net operating loss carryforwards $ 47,021  $ 42,317 
Inventory write-down 653  397 
Depreciation — 
Interest limitation 453  115 
Allowance for doubtful accounts 70  106 
Lease obligations 5,736  5,551 
Stock-based compensation 3,985  3,218 
Research and development credit 6  — 
Total deferred tax assets 57,924  51,704 
Deferred tax liabilities:
Depreciation (692) (1,145)
Amortization (116) (34)
Right-of-use assets (3,861) (4,004)
Contract liabilities (4) (4)
Total deferred tax liabilities (4,673) (5,187)
Net deferred tax assets $ 53,251  $ 46,517 
Valuation allowance $ (53,251) $ (46,517)
A valuation allowance is provided to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more-likely-than-not that a portion or none of the deferred tax assets will be realized. As of December 31, 2021 and 2020, management assessed the realizability of deferred tax assets. After consideration of all the evidence, including reversal of
deferred tax liabilities, future taxable income and other factors, management determined that a full valuation allowance was necessary as of December 31, 2021 and 2020. The valuation allowance increased by $6,734 and $6,585 during 2021 and 2020, respectively, primarily as a result of the increase in the net operating loss carryforward in each year.
The difference between the financial statement income tax benefit and the income tax benefit using statutory rates is primarily due to the valuation allowance. The Company’s effective income tax rate differs from the statutory federal income tax rate for the years ended December 31, 2021, 2020 and 2019 as follows:
Year Ended December 31,
2021 2020 2019
Federal tax rate 21.0  % 21.0  % 21.0  %
State taxes - net of Federal benefit 5.1  7.3  4.1 
Permanent items and other deductions (1.4) (0.6) (4.3)
Valuation allowance (24.7) (27.7) (20.8)
Effective income tax rate —  % —  % —  %
The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the consolidated balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
As of December 31, 2021, the Company had tax-effected net operating loss carryforwards of $47,021 to offset future taxable income. Net operating losses incurred in tax years beginning on or after January 1, 2018 are carried forward indefinitely. Net operating losses incurred in tax years prior to January 1, 2018 are subject to a twenty year carryforward before expiring. A portion of the net operating loss carryforwards may expire due to limitations imposed by Section 382 of the Internal Revenue Code. Future utilization of the available net operating loss carryforward may be limited under Internal Revenue Code Section 382 as a result of changes in ownership.
The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business, the Company is subject to examination by taxing authorities throughout the U.S. These examinations could include examining the timing and amount of deductions, the allocation of income among various tax jurisdictions and compliance with federal, state, and local laws. The Company’s remaining open tax years subject to examination by federal tax authorities include the years ended December 31, 2018 through 2021. The Company's remaining open tax years subject to examination by state and foreign tax authorities include the years ended December 31, 2017 through 2021. However, for tax years 2004-2017, federal and state taxing authorities may examine and adjust loss carryforwards in the years in which those loss carryforwards are ultimately utilized.
Legislation enacted in 2018, titled the Tax Cuts and Jobs Act of 2017, subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred.
The Company has no recorded income tax expense or income tax benefit for the years ended December 31, 2021, 2020 and 2019 due to the generation of net operating losses, the benefits of which have been fully reserved. The Company does not believe there are any additional tax refund opportunities currently available.