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
As of December 31, 2022, unremitted earnings in foreign subsidiaries are indefinitely reinvested. Should these earnings be distributed in the future in the form of dividends or otherwise, the Company would be subject to withholding taxes payable to various jurisdictions. Due to the 2017 Tax Act, there is no U.S. federal tax on cash repatriation from foreign subsidiaries, but it could be subject to foreign withholding tax and U.S. state income taxes.
Income (loss) before income taxes by tax jurisdiction consists of the following for the periods shown below (in thousands):
Years Ended December 31,
2022 2021 2020
United States $ (27,615) $ 25,181  $ 8,738 
Foreign 3,997  (14,702) 2,398 
Total income (loss) $ (23,618) $ 10,479  $ 11,136 
Provision for (benefit from) current and deferred income taxes consists of the following for the periods shown below (in thousands):
Years Ended December 31,
2022 2021 2020
Current tax expense:
Federal $ (422) $ 959  $ 945 
State (314) 731  297 
Foreign 2,632  396  791 
Total current tax expense $ 1,896  $ 2,086  $ 2,033 
Deferred tax expense:
Federal $ (6,818) $ 1,443  $ (3,045)
State 197  (404) (748)
Foreign (1,110) (3,383) 89 
Total deferred tax expense $ (7,731) $ (2,344) $ (3,704)
Income tax benefit $ (5,835) $ (258) $ (1,671)
The difference between the actual rate and the federal statutory rate is as follows:
Years Ended December 31,
2022 2021 2020
Statutory rate 21.0  % 21.0  % 21.0  %
Foreign provision —  0.6  (0.3)
State/province income tax 5.8  4.0  0.1 
Stock compensation 8.9  (1.6) (19.2)
Unrecognized tax benefits 0.9  8.9  — 
Other effects of check-the-box election —  —  (6.2)
Research credit 3.5  (11.0) (11.5)
Adjustment to carrying value 0.8  1.5  (4.0)
Foreign tax credit (10.2) (4.6) (9.1)
Valuation allowance (3.6) 3.2  9.0 
Foreign-derived intangible income deduction (FDII) 0.3  —  (2.7)
Global intangible low taxed income (GILTI) (0.5) —  — 
Non-deductible expenses-other (2.3) 3.4  2.4 
Foreign branch income (3.5) 1.3  4.5 
Foreign tax deduction 2.4  —  — 
Fair value adjustment on warrants 0.9  (27.9) — 
Other 0.2  (1.3) 1.0 
Effective tax rate 24.6  % (2.5) % (15.0) %
Deferred tax assets and liabilities consist of the following (in thousands):
December 31,
2022 2021
Deferred tax assets:
Net operating loss carryforwards $ 8,704  $ 10,384 
Tax credit carryforwards 3,213  4,929 
Accrued liabilities 1,308  785 
Stock compensation 4,712  2,221 
Charitable contribution 651  697 
Deferred rent —  41 
Operating lease assets and lease liabilities, net 181  — 
Other —  89 
Total gross deferred tax assets $ 18,769  $ 19,146 
Less: Valuation allowance (2,191) (1,334)
Total deferred tax assets $ 16,578  $ 17,812 
Deferred tax liabilities:
Intangibles 373  176 
Property and equipment 748  10,189 
Prepaid expenses 1,031  1,165 
Other 457  — 
Total deferred tax liabilities $ 2,609  $ 11,530 
Deferred tax assets (liability), net $ 13,969  $ 6,282 
As of December 31, 2021, the Company had a full valuation allowance of $1.3 million on the foreign tax credit carryforward due to the uncertainty of future foreign source taxable income, primarily due to projected tax deductions associated with future exercises of non-qualified stock options. During the year ended December 31, 2022, the Company filed an amended 2020 Federal tax return to remove the foreign tax credit carryforward and claim a deduction for foreign taxes
paid. The amended return reduced the credit carryforward to $0 which supported the release of the full valuation allowance on foreign tax credits as of December 31, 2022.
The Company had $3.5 million of California research credit carryforwards as of December 31, 2022, which may be carried forward indefinitely. Due to the uncertainty of utilization of these tax credits, primarily due to lower projected state taxable income associated with California's non-conformity to the capitalization of Section 174 expenses, the company decided to record a partial valuation allowance of $2.2 million on the California research credit carryforward. In making such determination, the Company considered all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent financial operations.
The following is a tabular reconciliation of the total amounts of deferred tax asset valuation allowance:
Years Ended December 31,
2022 2021 2020
Balance at beginning of period $ 1,334  $ 1,002  $ — 
Increase 2,191  332  1,002 
Decrease (1,334) —  — 
Balance at end of period $ 2,191  $ 1,334  $ 1,002 
The Company had approximately $34.4 million of accumulated federal net operating loss as of December 31, 2022, which may be carried forward indefinitely to offset taxable income. The Company had approximately $0.8 million of federal research credit carryforwards as of December 31, 2022. The federal research credits are limited to a 20-year carryforward period and will expire starting in 2041. The Company also had a charitable contribution carryforward of approximately $2.6 million as of December 31, 2022. The charitable contribution is limited to a 5-year carryforward period and will expire in 2026.
The Company had tax effected state net operating loss carryforwards of approximately $1.9 million as of December 31, 2022, which will expire between 2031 and 2042. The Company had $3.5 million of California research credit carryforwards as of December 31, 2022, which may be carried forward indefinitely. The Company also had $0.7 million of Texas research credit carryforwards as of December 31, 2022, which may be carried forward for 20 years and will expire starting in 2038.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
Years Ended December 31,
2022 2021 2020
Balance at beginning of period $ 637  $ —  $ — 
Increases for tax positions of prior years 313  609  — 
Increases for tax positions of current year —  148  — 
Decreases for tax positions of prior years —  —  — 
Settlements (183) (120) — 
Decreases for lapses in statute of limitations (234) $ —  $ — 
Balance at end of period $ 533  $ 637  $ — 
The Company has analyzed filing positions in all of the federal, state, and foreign jurisdictions where it is required to file income tax returns and for all open tax years. As of December 31, 2022, the Company recorded approximately $0.5 million of unrecognized tax benefits, all of which would impact the effective tax rate, if recognized. The Company does not anticipate that its unrecognized tax benefits will materially change within the next 12 months. The Company’s policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income tax expense. As of December 31, 2022, income tax expense includes an accrual of $0.1 million for the payment of interest and penalties associated with unrecognized tax benefits.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, the Company is subject to examination for both U.S. federal and state tax returns for the years 2019 to present. In late 2019, the Company was notified by the Israel Tax Authority that the Company’s Israel tax returns for the tax years ended December 31, 2016 through 2018 are under examination. Tax years starting from 2017 remain open to examination under the statute of limitations by the Israel Tax Authority for Israel. The tax years starting from 2019 remain open to examination by the Hong
Kong Inland Revenue Department for Asia. For the remaining jurisdictions, the Company is subject to examination by tax authorities from the date the Company started operations in the respective foreign jurisdiction to present.