Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company’s income before income taxes of $82.0 million, $192.4 million, and $199.2 million during the years ended December 31, 2022, 2021, and 2020, respectively, consisted of $81.0 million, $191.5 million, and $199.7 million of income earned in the United States. The remaining amount was earned in foreign jurisdictions.

The reconciliation of income tax computed at the U.S. federal statutory tax rate to our effective income tax rate is as follows:

	Year Ended December 31,
	2022		2021		2020
Income tax provision at statutory rate	21.0	%	21.0	%	21.0	%
State taxes, net	5.6		4.7		2.2
Stock-based compensation	7.1		2.1		0.8
Foreign derived intangible income deduction	(3.2)		(1.4)		(0.7)
Tax credits	(8.7)		(2.9)		(1.1)
Return to provision adjustments	1.5		2.3		(0.1)
Other	2.7		1.2		0.3
Total provision for income taxes	26.0	%	27.0	%	22.4	%

Differences between the Company’s effective tax rate and the statutory tax rate relate primarily to state income taxes, stock-based compensation, tax credits and changes in unrecognized tax benefits during the period. Deferred taxes reflect the net tax effects of the temporary differences between the carrying amount of assets and liabilities for financial reporting and the amount used for income tax purposes. Significant components of the Company’s net deferred tax assets are comprised of the following:

	December 31,
	2022		2021
(in thousands)
Deferred tax assets:
Inventories	$	5,694	$	3,387
Lease liability	4,799		5,068
Accounts receivable	115		372
Sales refund liability	1,866		2,002
Deferred revenue	972		1,243
Stock-based compensation	5,903		4,668
Amortization	36		149
Capitalized research expenditures	15,567		—
Net operating loss carryforwards	122		146
Capital loss carryforwards	114		—
Tax credits	2,286		1,003
Other	1,145		853
Total deferred tax assets	38,619		18,891
Deferred tax liabilities:
Depreciation and amortization	(10,587)		(11,215)
ROU lease asset	(4,213)		(4,421)
Total deferred tax liabilities	(14,800)		(15,636)
Net deferred tax assets	$	23,819	$	3,255

	Year Ended December 31,
	2022		2021		2020
(in thousands)
Current:
Federal	$	29,741	$	44,093	$	41,900
State	11,928		7,780		5,132
Foreign	107		162		(125)
Total current	41,776		52,035		46,907
Deferred:
Federal	(15,169)		(23)		(2,492)
State	(5,316)		(137)		200
Foreign	24		25		—
Total deferred	(20,461)		(135)		(2,292)
Income tax provision	$	21,315	$	51,900	$	44,615

There are immaterial foreign net operating loss carryforwards set to expire in 2026. The Company establishes valuation allowances if it is more likely than not that deferred tax assets will not be realized. The Company believes that it will generate sufficient future taxable income to realize the net operating loss deferred tax asset and other net deferred tax assets recorded in our consolidated financial statements. Accordingly, the Company has not recorded a valuation allowance against net deferred tax assets for the years ended December 31, 2022 and 2021.

As of December 31, 2022, 2021, and 2020, $4.1 million, $2.8 million and $1.4 million, respectively, of unrecognized tax benefits would affect our effective tax rate if recognized. The total balance of unrecognized gross tax benefits for the years ended December 31, 2022 and 2021, resulted primarily from research and development credits and inventory basis differences. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	Year Ended December 31,
	2022		2021
(in thousands)
Unrecognized tax benefits at beginning of year	$	2,379	$	3,318
Reductions based on prior year tax positions	(227)		—
Additions based on prior year tax provisions	296		593
Additions based on current year tax provisions	1,787		1,431
Reductions due to tax authorities’ settlements	—		(2,824)
Reductions due to expirations of statutes of limitation	(247)		(139)
Unrecognized tax benefits at end of year	$	3,988	$	2,379

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. For the years ended December 31, 2022 and 2021, interest or penalties related to income tax matters included in the provision for income taxes have not been material.

In January 2021, the IRS completed its examination of the Company’s 2017 tax year. No material adjustments resulted from this examination. The Company is subject to U.S. federal and state income tax examination for tax years 2016 and forward.