INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 16. INCOME TAXES

The following is a reconciliation of the statutory federal income tax rate applied to pre-tax net loss compared to the income taxes in the statement of operations as of December 31, 2021 and 2020.

		December 31, 2021				December 31, 2020
Income tax benefit at statutory U.S. federal rate		$	(6,946,677	)		$	(2,260,323	)
Permanent differences - equity based compensation			310,384				(101,870	)
Permanent difference - non-deductible compensation			765,339				-
Income tax benefit attributable to U.S. states			(965,708	)			(379,115	)
Basis adjustments			70,544				-
Change in valuation allowance			6,766,118				2,741,308
	$	-			$	-

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table sets forth deferred income tax assets and liabilities as of the date shown:

	December 31, 2021			December 31, 2020
Deferred tax assets:
Net operating losses	$	11,733,274		$	4,346,179
Intangible assets		85,758			65,759
Equity based compensation		569,350			1,435,982
Warrants		156,851			-
Accrued compensation		33,147			-
Property and equipment		73,646			108,918
Lease liability		260,674			275,339
Other		93,268			28,686
Deferred tax assets		13,005,968			6,260,863
Deferred tax liabilities
ROU asset		(247,695	)		(268,708	)
Deferred tax liabilities		(247,695	)		(268,708	)
Valuation allowance		12,758,273			5,992,155
Net deferred tax asset/(liability)	$	-		$	-

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and projections for future taxable income over periods in which the deferred tax assets are deductible. Management believes it is more likely than not that the Company will not realize the benefits of these deductible differences. A valuation allowance has been applied to the amount of deferred tax assets Management expects will be unrealized.

Management does not believe that there are significant uncertain tax positions in 2021. There are no interest and penalties related to uncertain tax positions in 2021. The Company has federal net operating loss carryforwards of $48,152,539 and $17,840,842 as of December 31, 2021 and 2020, respectively. $995,801 of the federal net operating loss is subject to a 20-year carry forward, with a portion beginning to expire in 2036. $47,156,738 of the federal net operating loss has an indefinite carry forward period. The Company had state net operating loss carryforwards totaling $34,824,332 and $12,757,935 at December 31, 2021 and 2020, which have indefinite lives. The Company has various state net operating loss carryforwards. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. If such net operating loss carryforwards are not utilized, they will begin to expire in 2031.

Federal and state laws impose substantial restrictions on the utilization of NOL carryforwards in the event of an ownership change for income tax purposes, as defined in Section 382 of the Internal Revenue Code (“IRC”). Pursuant to IRC Section 382, annual use of the Company’s NOL carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382 analysis regarding the limitation of NOL carryforwards.

However, it is possible that past ownership changes will result in the inability to utilize a significant portion of the Company’s NOL carryforward that was generated prior to any change of control. The Company’s ability to use its remaining NOL carryforwards may be further limited if the Company experiences an IRC Section 382 ownership change in connection with future changes in the Company’s stock ownership.

Certain deferred tax assets from DropCar, such as NOL carryforwards and capital loss carryforwards are not included in the Company’s deferred tax assets as they are expected to be fully limited under IRC Section 382 as a result of the merger.

AYRO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS