Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company's effective income tax rate is based on estimated income for the year, the estimated composition of the income in different jurisdictions and discrete adjustments, if any, in the applicable quarterly periods. Potential discrete adjustments include tax charges or benefits related to stock-based compensation, changes in tax legislation, settlements of tax audits or assessments, uncertain tax positions and acquisitions, among other items.

In the second quarter of 2018, the Company filed an appeal with the Massachusetts Appellate Tax Board (“MATB”) contesting adverse audit findings related to certain tax benefits and exemptions issued by the Massachusetts Department of Revenue (the "DOR"). The City of Cambridge, Massachusetts ("Cambridge") was an intervenor in the MATB proceedings. In July 2020, the MATB ruled in the Company’s favor. The DOR and Cambridge appealed the MATB decision in January 2022; however in June 2022 and October 2022, the DOR and Cambridge each respectively withdrew their appeals. The withdrawal of the appeals had an immaterial impact to the Company’s financial statements and the case is now closed.

The Company’s effective income tax rate was 27.6% and 8.0% for the nine months ended September 30, 2022 and 2021, respectively. The higher effective tax rate for the nine months ended September 30, 2022 is primarily due to an intercompany sale of intellectual property, an increase in tax on global intangible low taxed income and a decrease in the excess tax benefit related to stock-based compensation.

For the nine months ended September 30, 2022, the effective income tax rate was higher than the federal statutory tax rate due to an intercompany sale of intellectual property, tax on global intangible low taxed income and non-deductible stock-based compensation. These amounts were partially offset by foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits.

For the nine months ended September 30, 2021, the effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates, the excess tax benefit related to stock-based compensation, the revaluation of certain foreign income tax liabilities due to foreign exchange rate fluctuations and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by non-deductible stock-based compensation and state taxes.