INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 15. 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, 2023 and 2022.

	December 31, 2023			December 31, 2022
Income tax benefit at statutory U.S. federal rate	$	(7,165,506	)	$	(4,816,424	)
Equity issuance costs		267,864			—
Warrant liability		703,567			—
Derivative liability		884,940			—
Equity based compensation		874,366			—
Income tax benefit attributable to U.S. states		(28,316	)		(936,810	)
Change in valuation allowance		4,348,711			5,701,853
Change in state tax rate		114,374			—
Stock-based compensation		—			51,381
	$	—		$	—

AYRO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2023			December 31, 2022
Deferred tax assets:
Net operating losses	$	19,958,440		$	15,843,010
Intangible assets		80,797			99,566
Capitalized research and development expense		2,437,176			1,490,870
Equity based compensation		74,109			743,567
Lease liability		147,709			210,195
Warrants		116,639			156,851
Accrued compensation		—			1,467
Property and equipment		—			1,492
Other		180,979			113,487
Deferred tax assets		22,995,849			18,660,505
Deferred tax liabilities
ROU asset		(141,783	)		(200,379	)
Other		(45,228	)		—
Deferred tax liabilities		(187,011	)		(200,379	)
Valuation allowance		(22,808,838	)		(18,460,126	)
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 2023 and 2022. There are no interest and penalties related to uncertain tax positions in 2023 and 2022.

The Company has federal net operating loss carryforwards of $83,120,531 and $64,332,435 as of December 31, 2023 and 2022, 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. $82,124,730 of the federal net operating loss has an indefinite carry forward period. The Company has state net operating loss carryforwards totaling $66,877,457 and $48,091,426 at December 31, 2023 and 2022. 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.

The following table sets for the tax years subject to examination for the major jurisdictions where the Company conducts business as of December 31, 2023.

Federal	2020 to 2023
Texas and Georgia	2019 to 2023

AYRO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and experimental expenditures under IRC Section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of research and development costs of $7,418,028 and $6,729,353 during the years ended December 31, 2023 and 2022, respectively. Before the TCJA, businesses have had the option of deducting Section 174 expenses in the year incurred or capitalizing and amortizing the costs over five years. The Company will amortize these costs for tax purposes over five years if the research and development was performed in the U.S. and over 15 years if research and development was performed outside the U.S.

On August 16, 2022, the Inflation Reduction Act was enacted into law. This Act includes a 15.0 percent book minimum tax on the adjusted financial statement income of applicable corporations, a number of clean-energy tax credits, and a 1.0 percent excise tax on certain stock buybacks. The Company does not expect these changes to have a material impact on the provision for income taxes or the financial statements.