Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We have elected for two of our existing subsidiaries to be taxed as TRS's pursuant to the REIT rules of the U.S. Internal Revenue Code. We also have subsidiaries subject to tax in non-US jurisdictions.

For our TRS's, income taxes are accounted for under the asset and liability method in accordance with ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized. It is possible that some or all of our deferred tax assets could ultimately expire unused. The Company establishes valuation allowances against deferred tax assets when the ability to fully utilize these benefits is determined to be uncertain.

The components of income tax provision from continuing operations are:

	For the Year Ended December 31,
	2020		2019		2018
Current:
U.S. federal	$	—	$	—	$	(50)
U.S. State	368		298		395
Outside United States	7		13		78
Total Current	375		311		423
Deferred:
U.S. federal	71		(276)		(3,727)
U.S. State	(66)		(71)		(64)
Outside United States	58		(1)		—
Total Deferred	63		(348)		(3,791)
Total	$	438	$	(37)	$	(3,368)

Temporary differences and carry forwards which give rise to the deferred tax assets and liabilities are as follows:

	For the Year Ended December 31,
	2020		2019		2018
Deferred tax assets
Net operating loss carryforwards	$	22,950	$	20,218	$	17,610
Deferred revenue and setup charges	1,062		1,299		3,171
Operating lease liabilities	1,904		2,266		—
Property and equipment	—		512		—
Leases	400		—		1
Credits	300		300		287
Bad debt reserve	191		18		409
Intangibles	1,038		804		—
Interest expense carryforward IRC Sec. 163(j)	1,164		2,782		2,253
Equity compensation	1,654		1,119		952
Other	857		257		582
Gross deferred tax assets	31,520		29,575		25,265
Deferred tax liabilities
Property and equipment	(616)		—		(3,089)
Goodwill	(3,042)		(2,494)		(1,953)
Intangibles	—		(591)		(11,910)
Operating lease right-of-use assets	(1,056)		(1,261)		—
Prepaid commissions	(774)		(1,007)		(956)
Other	(218)		(224)		(93)
Gross deferred tax liabilities	(5,706)		(5,577)		(18,001)
Net deferred tax asset	25,814		23,998		7,264
Valuation allowance	(26,624)		(24,747)		(8,361)
Net deferred tax liability	$	(810)	$	(749)	$	(1,097)

The taxable REIT subsidiaries currently have net operating loss carryforwards related to U.S. federal income taxes of $33.4 million that expire in 11-16 years and $42.3 million which have no expiration. The taxable REIT subsidiaries also have $86.0 million of net operating loss carryforwards relating to state income taxes that expire in 1-20 years. The Company’s interest expense carryforward of $4.5 million has no expiration.

The effective tax rate is subject to change in the future due to various factors such as the operating performance of the taxable REIT subsidiaries, tax law changes and future business acquisitions. The differences between total income tax expense or benefit and the amount computed by applying the statutory income tax rate to income before provision for income taxes with respect to the TRS activity were as follows:

	For the Year Ended December 31,
	2020			2019			2018
TRS
Statutory rate applied to pre-tax loss	$	(1,380)		$	(12,991)		$	(9,656)
Permanent differences, net	248			16			97
State income tax, net of federal benefit	(421)			(2,868)			(1,430)
Foreign income tax	7			13			78
Federal and State rate change	(1)			(20)			(146)
Other	109			(110)			41
Valuation allowance increase	1,876			15,923			7,648
Total tax expense (benefit)	$	438		$	(37)		$	(3,368)
Effective tax rate	(6.7)		%	0.1		%	7.3		%

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The CARES Act is an emergency economic stimulus package that includes measures and tax provisions to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act provides tax changes in response to the COVID-19 pandemic. Some of the provisions which impact our financial statements include the removal of certain limitations on utilization of net operating losses, increasing the ability to deduct interest expense, and amending certain provisions of the previously enacted Tax Cuts and Jobs Act. We have evaluated the impact of the CARES Act and determined that the impact of the CARES Act is immaterial to our consolidated financial statements.

On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, a spending bill containing additional stimulus relief for the COVID-19 pandemic. Because the bill was enacted in close proximity to the end of the year, we continue to evaluate the Consolidated Appropriations Act, 2021 and have not yet identified any material impacts to the financial statements that may result from the bill.

As of December 31, 2020, 2019 and 2018, we had no uncertain tax positions. If we accrue any interest or penalties on tax liabilities from significant uncertain tax positions, those items will be classified as interest expense and general and administrative expense, respectively, in the Statements of Operations and Statements of Comprehensive Income. For the years ended December 31, 2020, 2019, and 2018, we had accrued no such interest or penalties.

We are currently not under examination by the Internal Revenue Service or any state or foreign jurisdictions. Tax years ending after December 31, 2016 remain subject to examination and assessment, state limitation periods included. Tax years ending December 31, 2009 through December 31, 2016 remain open solely for purposes of examination of our loss and credit carryforwards.

We provide a valuation allowance against deferred tax assets if, based on management’s assessment of operating results and other available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The evidence contemplated by management at December 31, 2020, 2019, and 2018 consists of current and prior operating results, available tax planning strategies, and the scheduled reversal of existing taxable temporary differences. Evidence from the scheduled reversal of taxable temporary differences relies on management judgments based on the accumulation of available evidence. Those judgments may be subject to change in the future as evidence available to management changes. Management’s assessment of the Company’s valuation allowance may further change based on our generation or ability to project of future operating income, and changes in tax policy or tax planning strategies.

As of December 31, 2020, 2019, and 2018 valuation allowances of $26.6 million, $24.7 million and $8.4 million, respectively, were recognized against certain net federal and state deferred tax assets since it is more likely than not that the deferred tax assets will not be realized. The $1.9 million year-over-year change is primarily caused by the federal and state valuation allowances recorded due to ongoing operating losses of the taxable REIT subsidiaries. Additionally, some portion of the change to the valuation allowances relates to changes in the evidence available related to the scheduled reversal of

taxable temporary differences; and some portion of the change to the state valuation allowance is attributable to state net operating losses generated where the Company has discontinued its operations or reduced its presence in certain state jurisdictions.