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Provision For Income Taxes
12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Provision For Income Taxes PROVISION FOR INCOME TAXES
Our income before income taxes is derived solely from within the U.S. Our provision for income taxes was as follows (in thousands):
 
Year Ended December 31,
 
202120202019
Current:
Federal$11,338 $— $— 
State5,224 3,791 6,095 
Total current tax expense$16,562 $3,791 $6,095 
Deferred:
Federal$46,416 $14,886 $71,580 
State113 379 (578)
Total deferred tax expense46,529 15,265 71,002 
Provision for income taxes$63,091 $19,056 $77,097 
The provision for income taxes for the years ended December 31, 2021, 2020, and 2019 primarily relates to the utilization of federal tax attributes and state taxes in jurisdictions outside of California, for which we do not have net operating loss carryforwards due to a limited operating history. Our historical net operating losses were sufficient to fully offset any federal taxable income for the years ended December 31, 2020 and 2019 but were not sufficient to fully offset federal taxable income for the year ended December 31, 2021.
The reconciliation of the U.S. federal income tax provision at the statutory federal income tax rate of 21% for each of the years ended December 31, 2021, 2020 and 2019, respectively, to our provision for income taxes was as follows (in thousands):
 
Year Ended December 31,
 
202120202019
U.S. federal income tax provision at statutory rate$61,772 $27,476 $83,603 
State tax (benefit) expense 1,336 (2,232)1,148 
Change in valuation allowance2,883 5,525 3,208 
Research credits(6,263)(11,356)(8,299)
Stock-based compensation(11,831)(20,399)(9,177)
Non-deductible executive compensation11,182 18,067 4,228 
Branded prescription drug fee2,897 2,537 1,099 
Other1,115 (562)1,287 
Provision for income taxes$63,091 $19,056 $77,097 
Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.
Our deferred tax assets and liabilities were as follows (in thousands):
 
December 31,
 
20212020
Deferred tax assets:
Net operating loss carryforwards$17,993 $37,454 
Tax credit carryforwards101,460 126,625 
Depreciation and amortization7,764 18,414 
Stock-based compensation23,162 19,818 
Lease liabilities12,385 11,908 
Accruals and reserves not currently deductible19,531 12,207 
Deferred revenue8,040 7,637 
Other assets1,303 — 
Total deferred tax assets191,638 234,063 
Valuation allowance(70,068)(67,185)
Net deferred tax assets121,570 166,878 
Deferred tax liabilities:
Lease right-of-use assets(9,907)(9,510)
Other liabilities— (657)
Total deferred tax liabilities(9,907)(10,167)
Net deferred taxes$111,663 $156,711 
ASC Topic 740: Income Taxes (Topic 740) requires that the tax benefit of net operating losses, temporary differences and credit carry forwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carry forward period. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2021, based on the evaluation and weighting of both positive and negative evidence, including our achievement of a cumulative three-year income position as of December 31, 2021 and forecasts of future operating results, as well as considering the utilization of net operating losses and tax credits prior to their expiration, management determined that there is sufficient positive evidence to conclude that it is more likely than not the deferred tax assets are realizable. As of December 31, 2021 and 2020, we continue to carry a valuation allowance of $70.1 million and $67.2 million, respectively, against our California state deferred tax assets. The valuation allowance increased by $2.9 million and $5.5 million during the years ended December 31, 2021 and 2020, respectively.
At December 31, 2021, we had federal business tax credits of approximately $101.0 million which expire in the years 2025 through 2041. We also had state net operating loss carryforwards of approximately $426.0 million, which expire in the years 2022 through 2036, California research and development tax credits of approximately $45.0 million, which do not expire, and California Competes Tax Credits of approximately $2.0 million, which expire in 2026.
Under the Internal Revenue Code and similar state provisions, certain substantial changes in our ownership could result in an annual limitation on the amount of net operating loss and credit carryforwards that can be utilized in future years to offset future taxable income. The annual limitation may result in the expiration of net operating losses and credit carryforwards before utilization. We completed a Section 382 analysis through December 31, 2021, and concluded that an ownership change, as defined under Section 382, had not occurred.
The following table summarizes the activity related to our unrecognized tax benefits (in thousands):
 
Year Ended December 31,
 
202120202019
Beginning balance$80,941 $79,078 $76,060 
Change relating to prior year provision728 591 589 
Change relating to current year provision2,215 3,305 2,429 
Reductions based on the lapse of the applicable statutes of limitations(301)(2,033)— 
Ending balance$83,583 $80,941 $79,078 
We do not anticipate that the amount of unrecognized tax benefits existing as of December 31, 2021 will significantly change over the next 12 months. As of December 31, 2021, we had $83.6 million in unrecognized tax benefits, of which $52.6 million would reduce our provision for income taxes and the effective tax rate, if recognized. Interest and penalties were nominal or zero for all periods presented. We have elected to record interest and penalties in the accompanying Consolidated Statements of Income as a component of income taxes.
We file U.S. and state income tax returns in jurisdictions with varying statues of limitations during which such tax returns may be audited and adjusted by the relevant tax authorities. The 2001 through 2021 tax years generally remain subject to examination by federal and most state tax authorities to the extent net operating losses and credits generated during these periods are being utilized in the open tax periods.