Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

On March 27, 2020, the U.S. government enacted the CARES Act which, among other changes, eliminated the taxable income limit for certain net operating losses (“NOL”), allowed businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior years, and provided a payment delay of employer payroll taxes during 2020 after the date of enactment. These provisions allowed the Company to carry back federal tax losses related to 2018 and 2019. The Company recorded net tax receivable totaling $11.3 million in 2020 related to these provisions, of which $1.2 million has been collected as of December 31, 2020. The remaining $10.1 million is reflected in income tax receivable on the consolidated balance sheet as of December 31, 2020. The Company has deferred payment on $2.2 million in employer taxes until 2021, which is included as part of accrued compensation on the consolidated balance sheet as of December 31, 2020.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

		December 31,
		2020		2019
Deferred Tax Assets:
	Net operating loss	$	17,010	$	14,350
	Research and development and other tax credits	5,920		2,349
	Share-based compensation	3,259		3,439
	Interest limitation carryforward	2,992		839
	Accrued expenses	2,918		3,759
	Accrued settlement costs	2,464		3,276
	Bad debts	2,138		4,859
	Lease obligation	1,021		1,044
	Sales return and allowances	170		659
	Other	1,075		1,285
Deferred Tax Liabilities:
	Prepaid expenses	(1,170)		(1,189)
	Property and equipment	(1,073)		(1,582)
	Right of use asset	(895)		(868)
	Intangible assets	(160)		(389)
	Deferred costs of goods sold	(43)		(322)
	Unearned insurance refund	—		(894)
Net Deferred Tax Assets		35,626		30,615
	Less: Valuation allowance	(35,626)		(30,615)
Net Deferred Tax Assets after Valuation Allowance		$	—	$	—

Interest limitation carryforward of $0.8 million was included as part of other in 2019. This amount is presented separately in the table above for comparative purposes.

The reconciliation of the federal statutory income tax rate of 21% to the effective rate is as follows:

	Year ended December 31,
	2020		2019		2018
Federal statutory rate	21.00	%	21.00	%	21.00	%
State taxes, net of federal benefit	(0.20)	%	(1.36)	%	3.52	%
Nondeductible compensation	(0.89)	%	(1.49)	%	(15.33)	%
Meals and entertainment	(0.50)	%	(2.04)	%	(24.16)	%
Share-based compensation	(1.24)	%	(5.05)	%	10.82	%
Tax credits	0.32	%	0.45	%	19.75	%
Uncertain tax positions	0.24	%	1.22	%	(2.35)	%
Write-off of net operating losses	—	%	—	%	(11.81)	%
Fixed asset adjustment	—	%	—	%	5.33	%
NOL carryback rate differential	10.99	%	—	%	—	%
Other	(1.66)	%	0.12	%	(1.03)	%
Valuation allowance	(8.14)	%	(12.83)	%	(788.33)	%
Effective tax rate	19.92	%	0.02	%	(782.59)	%

The tax benefit associated with the carryback of federal net operating losses under the CARES Act had a significant impact on the Company’s effective tax rate for the year ended December 31, 2020. Additionally, the effective tax rate was affected by other permanent differences, as well as the change in the valuation allowance.

Share-based Compensation had a significant impact on the Company's effective tax rate for the year ended December 31, 2019. Additionally, state taxes, Meals and Entertainment, and Nondeductible Compensation had a significant impact on the Company's effective tax rate.

Meals and Entertainment had a significant impact on the Company's effective tax rate for the year ended December 31, 2018 due to the impact of the Act on the Company's method of calculating this permanent adjustment. Additionally, Federal and state tax credits, mostly related to the Company's Research and Development activities, had a significant impact on the Company's effective rate.

Current and deferred income tax (benefit) expense is as follows (in thousands):

	December 31,
	2020		2019		2018
Current:
Federal	$	(12,418)	$	(53)	$	614
State	159		48		427
Total current	(12,259)		(5)		1,041
Deferred:
Federal	—		—		19,452
State	—		—		6,089
Total deferred	—		—		25,541
Total (benefit) expense	$	(12,259)	$	(5)	$	26,582

Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. The Company establishes a valuation allowance for deferred tax assets for which realization is not likely. As of each reporting date,

management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

A valuation allowance of $35.6 million and $30.6 million was recorded against the deferred tax asset balance as of December 31, 2020 and December 31, 2019, respectively. The Company maintains a full valuation allowance because it is not more likely than not the deferred tax assets will be utilized based on all available positive and negative evidence. In the event that the weight of the evidence changes in the future, any reduction in the valuation allowance would result in an income tax benefit.

At December 31, 2020 and 2019, the Company had income tax net operating loss (“NOL”) carryforwards for federal and state purposes of $62.7 million and $68.5 million and $56.8 million and $49.3 million, respectively. A portion of the Company’s NOLs and tax credits are subject to annual limitations due to ownership change limitations provided by Internal Revenue Code Section 382. If not utilized, the federal and state tax NOL carryforwards will expire between 2027 and 2037. As of December 31, 2020, the Company has recorded a deferred tax asset for both federal and state NOL carryforwards of approximately $13.2 million and $4.0 million, respectively. As of December 31, 2019, the Company has recorded a deferred tax asset for federal and state NOL carryforwards of $11.9 million and approximately $3.1 million, respectively.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands) included in other liabilities in the consolidated balance sheets:

	2020		2019		2018
Unrecognized tax benefits - January 1	$	627	$	938	$	847
Gross increases - tax positions in current period	—		56		91
Decreases in prior year positions	(150)		(367)		—
Unrecognized tax benefits - December 31	$	477	$	627	$	938

Included in the balance of unrecognized tax benefits as of December 31, 2020 and December 31, 2019, are $0 and $0.6 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.

The Company recognizes accrued interest related to unrecognized tax benefits and penalties as income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued $0 of interest during 2020. The Company accrued $0.1 million of interest during 2019 and, in total, as of December 31, 2019 had recognized $0.1 million of interest. The Company accrued $0.1 million of interest during 2018, and, in total, as of December 31, 2018 had recognized $0.1 million of interest.

The Company is subject to taxation in the U.S. and various state jurisdictions. As of December 31, 2020, the Company’s tax returns for 2017 through 2019 generally remain open for exam by taxing jurisdictions. Additional prior years may be open to the extent attributes are being carried forward to an open tax year.