Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

19. Income Taxes

The Company computes income taxes using the liability method. This method requires recognition of deferred tax assets and liabilities, measured by enacted rates, attributable to temporary differences between the financial statements and the income tax basis of assets and liabilities. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that certain deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those specific jurisdictions prior to the dates on which such net operating losses expire. The Company maintained a full valuation allowance against its net deferred tax assets because the Company has determined that is it more likely than not that these assets will not be fully realized based on a current evaluation of expected future taxable income and the Company is in a cumulative loss position.

The Company’s effective tax rate for the three months ended September 30, 2022 and 2021 was (1.79)% and (0.03)%, respectively. The Company’s effective tax rate for the nine months ended September 30, 2022 and 2021 was 4.43% and (0.16)%, respectively. The increase in effective tax rate for the nine months ended September 30, 2022 was primarily driven by a deferred tax benefit recorded for the decrease of Valuation Allowance resulting from the acquisition of Unitas Holdings Corp. (now known as Vroom Finance Corporation) that occurred during the period, of $23.9 million.

The Company is subject to tax in the United States and many state and local jurisdictions. The Company, with certain exceptions, is no longer subject to income tax examinations by U.S. federal, state and local for tax years 2015 and prior.

The Internal Revenue Code (IRC) Section 382 provides for a limitation of the annual use of net operating loss and tax credit carryforwards following certain ownership changes (as defined by the IRC Section 382) that limits the Company’s ability to utilize these carryforwards. The Company completed a Section 382 study to determine the applicable limitation, if any. It was determined that the Company has undergone four ownership changes, the most recent of which was April 2021. These changes will substantially limit the use of the net operating losses generated before the change in control.

The Company acquired Unitas Holdings Corp (now known as Vroom Finance Corporation) on February 1, 2022 in a stock acquisition, refer to Note 5 – Acquisitions for additional information. The NOLs and other tax attributes acquired

will be subject to Section 382 limitations. The Company is in the process of determining the amount of attributes that will be available for use.

The Company has not identified any uncertain tax positions as of September 30, 2022 and December 31, 2021.

On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law. The IRA implements a new 15% corporate alternative minimum tax based on adjusted GAAP net income, an excise tax on repurchases of corporate stock and various clean energy credits. Based on the language of the IRA as enacted we do not expect there to have a material effect on the Company.