Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

20. Income Taxes

Income Tax Provision

Domestic and foreign pretax income (loss) are as follows for the years ended December 31, 2023 and 2022 (in thousands):

	Year Ended December 31,
	2023			2022
Domestic	$	(365,520	)	$	(472,203	)
Foreign		595			613
Total	$	(364,925	)	$	(471,590	)

The components of the provision for income taxes are as follows (in thousands):

	Year Ended December 31,
	2023		2022
Current:
Federal	$	—	$	—
State and local		526		4,083
Foreign		89		92
Total current tax expense		615		4,175
Deferred tax (benefit):
Federal		—		(20,472	)
State and local		—		(3,383	)
Foreign		—		—
Total deferred tax (benefit)		—		(23,855	)
Provision (benefit) for income taxes	$	615	$	(19,680	)

On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was signed into law. The IRA includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, among other provisions. The Company evaluated the provisions included under the IRA and the provisions do not have a material impact to the Company's consolidated financial statements.

Tax Rate Reconciliation

The Company’s effective tax rate for the years ended December 31, 2023 and 2022 was (0.17)% and 4.17%, respectively. The increase in effective tax rate for the year ended December 31, 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 December 31, 2022 period, of $23.9 million.

A reconciliation of the provision for income taxes at the statutory rate to the amount reflected in the consolidated statements of operations is as follows (in thousands):

	Year Ended December 31,
	2023			2022
Income taxes at statutory rate	$	(76,657	)	$	(99,034	)
State income taxes, net of federal benefit		(23,718	)		(3,529	)
Foreign Rate Differential		(36	)		(129	)
Permanent differences		1,550			1,510
Goodwill impairment		—			41,241
Deferred tax adjustment for acquisition of business		—			(23,855	)
Change in valuation allowance		99,926			66,634
Other		(450	)		(2,518	)
Provision (benefit) for income taxes	$	615		$	(19,680	)

Deferred Tax Assets (Liabilities)

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 it is 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 being in a cumulative 3-year loss position. As of December 31, 2023, 2022, and 2021, the valuation allowance balance was $358.7 million, $258.8 million and $216.0 million, respectively.

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

	As of December 31,
	2023			2022
Deferred tax assets:
Net operating loss carryforwards	$	365,841		$	265,927
Inventory reserves		9,758			9,395
Stock-based compensation		2,169			3,067
Depreciation		3,729			—
Lease Liability		8,829			7,086
Unrealized Gains/Losses		3,636			10,549
Allowance for Doubtful Accounts		1,765			8,342
Other		2,441			2,612
Total deferred tax assets		398,168			306,978
Less: valuation allowance		(358,722	)		(258,796	)
Net deferred tax assets		39,446			48,182
Deferred tax liabilities:
Intangible amortization		(32,687	)		(37,377	)
Depreciation		—			(3,017	)
Repo Expenses		(4,966	)		(2,194	)
Right of Use Asset		(1,793	)		(5,594	)
Net deferred tax liabilities		(39,446	)		(48,182	)
Net deferred income taxes	$	—		$	—

Net Operating Losses

As of December 31, 2023, the Company had total net operating loss carryforwards for U.S. federal income tax purposes of $1,504.9 million, of which $168.5 million expire from 2028 through 2042 and $1,336.4 million do not expire. The Company has net operating loss carryforwards for state income tax purposes of $767.8 million, which expire from 2034 through 2042.

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 2017 and prior. The company is not currently under audit for any US federal or state income tax audits.

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 – Acquisition for additional information. The NOLs and other tax attributes acquired are subject to Section 382 limitations.

Uncertain Tax Positions

The Company has not identified any uncertain tax positions as of December 31, 2023 or 2022. Any interest and penalties related to uncertain tax positions shall be recorded as a component of income tax expense. To date, no interest or penalties have been accrued in relation to uncertain tax positions.