Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
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,
2022		 December 31,
2021
Deferred tax assets:
Net operating loss carryforwards $ 42,716  $ 47,049 
Inventory write-down 503  653 
Interest limitation —  453 
Allowance for doubtful accounts 169  70 
Lease obligations 5,643  5,736 
Stock-based compensation 5,274  3,985 
Capitalized research and development costs 6,357  6 
Debt derivative liability 1,174  (28)
Charitable contributions 203  — 
Accrued bonus 1,010  — 
Total deferred tax assets 63,049  58,934 
Deferred tax liabilities:
Depreciation (983) (692)
Amortization (17) (116)
Right-of-use assets (3,744) (3,861)
Contract liabilities 4  (4)
Total deferred tax liabilities (4,740) (4,673)
Net deferred tax assets 58,309  54,261 
Valuation allowance $ (58,309) $ (53,251)
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, 2022 and 2021, 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, 2022 and2021. The valuation allowance increased by $5,058 during 2022, primarily as a result of the increase in the capitalized research and development costs. The valuation allowance increased by $6,734 during 2021, primarily as a result of the increase in the net operating loss carryforward.
The Company adopted Section 174 of the Tax Cuts and Jobs Act of 2017 ("TCJA") which requires taxpayers to capitalize and amortize research and development expenditures for the tax years beginning after December 31, 2021. This rule became effective for the Company during 2022 and resulted in capitalized research and development costs of $6,357 being recorded to deferred tax assets as of December 31, 2022.
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, 2022, 2021, and 2020 as follows:
Year Ended December 31,
2022 2021 2020
Federal tax rate 21.0  % 21.0  % 21.0  %
State taxes - net of Federal benefit 4.1  5.1  7.3 
Permanent items and other deductions (7.1) (1.6) (0.6)
Other (0.5) 0.2  — 
Valuation allowance (17.5) (24.7) (27.7)
Effective income tax rate —  % —  % —  %
As of December 31, 2022, the Company had tax-effected net operating loss carryforwards of $42,716 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, 2019, through 2022. The Company's remaining open tax years subject to examination by state and foreign tax authorities include the years ended December 31, 2018, through 2022. However, for tax years 2004 through 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, 2022, 2021, and 2020 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.