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Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

11. INCOME TAXES

The following is a geographical breakdown of income before the provision for (loss) income taxes as of December 31:

 

 

2020

 

 

2019

 

 

2018

 

Pre-tax (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

(58,140

)

 

$

(26,510

)

 

$

(21,459

)

Foreign

 

 

1,042

 

 

 

(168

)

 

 

 

Total

 

 

(57,098

)

 

 

(26,678

)

 

 

(21,459

)

Income tax expense (benefit) for the years ended December 31, is comprised of the following:

 

 

 

2020

 

 

2019

 

 

2018

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

(38

)

 

$

4

 

 

$

7

 

State

 

 

1,152

 

 

 

289

 

 

 

245

 

Foreign

 

 

490

 

 

 

41

 

 

 

 

Total

 

 

1,604

 

 

 

334

 

 

 

252

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

(1,184

)

 

 

(2,323

)

 

 

(3,639

)

State

 

 

553

 

 

 

(1,132

)

 

 

(1,581

)

Foreign

 

 

(122

)

 

 

 

 

 

 

Total

 

 

(753

)

 

 

(3,455

)

 

 

(5,220

)

Income tax expense (benefit)

 

$

851

 

 

$

(3,121

)

 

$

(4,968

)

 

The Company’s deferred 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 as of December 31, are as follows:

 

 

 

2020

 

 

2019

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating losses

 

$

7,353

 

 

$

3,850

 

Allowance for bad debts

 

 

1,231

 

 

 

331

 

Employee related

 

 

2,553

 

 

 

1,348

 

Contingent consideration

 

 

3,209

 

 

 

588

 

Other

 

 

170

 

 

 

318

 

Total deferred tax asset

 

 

14,516

 

 

 

6,435

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Intangible assets

 

 

(2,918

)

 

 

(4,825

)

Property and equipment

 

 

(5,598

)

 

 

(4,589

)

Other

 

 

(604

)

 

 

(551

)

Total deferred tax liability

 

 

(9,120

)

 

 

(9,965

)

Valuation allowance

 

 

(8,211

)

 

 

 

Net deferred tax liability

 

$

(2,815

)

 

$

(3,530

)

 

A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate for the years ended December 31, is as follows:

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

Tax completed at federal statutory rate

 

 

21.00

 

%

 

 

21.00

 

%

 

 

21.00

 

%

State tax net of federal benefit

 

 

1.32

 

 

 

 

2.51

 

 

 

 

4.96

 

 

Non- deductible expenses

 

 

(1.05

)

 

 

 

(1.38

)

 

 

 

(0.91

)

 

Equity compensation

 

 

(0.59

)

 

 

 

(2.41

)

 

 

 

(0.83

)

 

Embedded derivatives and warrant options

 

 

(7.43

)

 

 

 

(8.79

)

 

 

 

 

 

Foreign taxes

 

 

(0.77

)

 

 

 

(0.15

)

 

 

 

 

 

Change in valuation allowance

 

 

(14.30

)

 

 

 

 

 

 

 

 

 

Other

 

 

0.34

 

 

 

 

0.92

 

 

 

 

(1.03

)

 

Effective income tax rate

 

 

(1.48

)

%

 

 

11.70

 

%

 

 

23.19

 

%

 

The Company elected to account for the global intangible low-taxed income inclusion as a period cost.

The Company recorded a valuation allowance against its US, Australia and Sweden net deferred tax assets as realization of such assets is not more likely than not.  The impact of indefinite lived deferred items was considered in recording such valuation allowance. The increase in the Company’s valuation allowance was $8.2 million during the year ended December 31, 2020.

The Company’s policy is to record any penalties or interest related to any unrecognized tax benefits as a component of the income tax provision. As of December 31, 2020, 2019, and 2018, the Company does not have any unrecognized tax benefits.

In December 2017 new federal tax reform legislation was enacted in the United States resulting in significant changes from previous tax law. As a result, the Company previously provided a provisional estimate of the effect of this legislation in its financial statements. In the fourth quarter of 2019, the Company completed its analysis to determine the effect of the legislation and recorded immaterial adjustments as of December 31, 2019.

As of December 31, 2020, federal and state net operating loss carryforwards of approximately $29.5 million and $18.2 million are available to offset future federal and state taxable income, respectively. 

Federal net operating loss carryforwards will begin to expire during 2035 while the Company’s state net operating loss carryforwards will begin to expire during various years, dependent on the jurisdiction. Federal net operating losses generated beginning in 2018 are carried forward indefinitely. Therefore, $21.0 million of Federal net operating loss carryforwards will not expire.     

The Company is subject to audit by federal and state tax authorities in the ordinary course of business. The Company’s federal income tax returns remain subject to examination for the 2015 through 2020 tax years. The Company files in multiple state jurisdictions which remain subject to examination for the 2015 through 2020 tax years.  The Company is also subject to audit by tax authorities in Canada, Australia, Germany, and Sweden for which returns are subject to examination for various years, dependent on the jurisdiction.    

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. The CARES Act includes several significant provisions for corporations, including those pertaining to net operating losses, interest deductions and payroll tax benefits. Under ASC 740, the effects of new legislation are recognized upon enactment. Accordingly, the effects of the CARES Act have been incorporated into the income tax provision computation for the year ended December 31, 2020. These provisions did not have a material impact on the income tax provision. The Company deferred the employer side social security payments for payroll paid for the portion of 2020 following enactment as permitted by the CARES Act.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (CAA 2021) which included a number of provisions including, but not limited to the extension of numerous employment tax credits, the extension of the Section 179D deduction, enhanced business meals deductions, and the deductibility of expenses paid with Paycheck Protection Program (PPP) loan funds that are forgiven. Accordingly, the effects of the CAA 2021 have been incorporated into the income tax provision for the year ended December 31, 2020.  These provisions did not have a material impact on the income tax provision.