7. Income Taxes

We have recorded a net tax expense of $0.1 million and a net tax benefit $12,000 for the years ended December 31, 2014 and 2013, respectively. The tax expense for the years ended December 31, 2014 and 2013 were primarily related to foreign income taxes and state minimum taxes.

At December 31, 2014, we had federal and state tax net operating loss carryforwards of approximately $507.5 million and $333.1 million, respectively. The federal and state tax loss carryforwards will begin to expire in 2019 and 2015, respectively, unless previously utilized. California net operating loss carryforwards of $10.0 million, $39.6 million and $14.1 million will expire in 2015, 2016 and 2017, respectively. California net operating loss carryforwards of $223.5 million will expire from 2028 through 2034. We also had federal and state research and development tax credit carryforwards of approximately $8.1 million and $10.8 million, respectively. The federal research and development tax credit will begin to expire in 2020, unless previously utilized. The state research and development tax credit will carryforward indefinitely until utilized.

Utilization of net operating losses and credit carryforwards are subject to an annual limitation due to ownership change limitations provided by Section 382 and 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. An ownership change limitation occurred as a result of the stock offering completed in February 2009. The limitation will likely result in approximately $2.1 million of U.S. income tax credits that will expire unused. The related deferred tax assets have been removed from the components of our deferred tax assets as summarized below. The tax benefits related to the remaining federal and state net operating losses and tax credit carryforwards may be further limited or lost if future cumulative changes in ownership exceed 50% within any three-year period.

Significant components of our deferred tax assets as of December 31, 2014 and 2013 are shown below (in millions). A valuation allowance of approximately $169.0 million has been established as of December 31, 2014 to offset the deferred tax assets, as realization of such assets is uncertain. We maintain a deferred tax liability related to indefinite lived intangible assets that is not netted against deferred tax assets, as reversal of the taxable temporary difference cannot serve as a source of income for realization of the deferred tax assets, because the deferred tax liability will not reverse until the asset is sold or written down due to impairment.



	December 31,
	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	132.2		$	132.8
Capitalized research and development expenses	5.0			7.2
Tax credits	9.0			7.3
Share-based compensation	15.5			12.2
Fixed and intangible assets	1.2			1.1
Other, net	7.0			5.4
Total gross deferred tax assets	169.9			166.0
Less: valuation allowance	(169.0		)	(164.7		)
Deferred tax liability related to acquired intangibles assets	(1.0		)	(1.4		)
Net deferred tax liability	$	(0.1	)	$	(0.1	)

We recognize windfall tax benefits associated with the exercise of share-based compensation directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss carryforwards resulting from windfall tax benefits occurring from January 1, 2006 onward. At December 31, 2014, deferred tax assets do not include $63.9 million of excess tax benefits from share-based compensation.

The reconciliation between our effective tax rate on income (loss) from continuing operations and the statutory rate is as follows:



	December 31,
	2014		2013		2012
Income taxes at statutory rates	35.00	%	35.00	%	35.00	%
State income tax, net of federal benefit	(1.56	)%	2.70	%	2.74	%
Permanent items	(0.80	)%	(3.64	)%	(0.84	)%
Research and development credits	7.50	%	6.17	%	1.43	%
Stock and officers compensation	(15.93	)%	(2.23	)%	(3.01	)%
Rate change	(1.66	)%	7.11	%	(2.13	)%
Other	(3.97	)%	0.08	%	(1.15	)%
Change in valuation allowance	(19.24	)%	(45.15	)%	(29.76	)%
	(0.66	)%	0.04	%	2.28	%

The following table summarizes the activity related to our gross unrecognized tax benefits (in millions):




Balance at January 1, 2012	$	4.4
Increases related to current year tax positions	0.5
Decreases due to statute of limitation expiration	(0.1		)
Balance at December 31, 2012	4.8
Adjustments related to prior year tax positions	0.5
Increases related to current year tax positions	0.9
Balance at December 31, 2013	6.2
Increases related to current year tax positions	1.4
Balance at December 31, 2014	$	7.6

Due to the valuation allowance recorded against our deferred tax assets, none of the total unrecognized tax benefits as of December 31, 2014 would reduce our annual effective tax rate if recognized. Interest and penalties are classified as a component of income tax expense and were not material for all the periods presented. Due to net operating losses incurred, tax years from 1999 and forward remain open to examination by the major taxing jurisdictions to which we are subject. We do not expect any changes to our unrecognized tax benefits over the next twelve months.

As of December 31, 2014, U.S. income taxes have not been provided on approximately $1.0 million of accumulated undistributed earnings of our foreign subsidiary in Sweden, as we currently intend to indefinitely reinvest these earnings in our foreign operations. It is not practicable to estimate the amount of tax that might be payable if some or all of such earnings were to be remitted.