

	2019			2018			2017
Current:
Federal	$	4,247		$	4,900		$	6,039
State	2,414			1,377			1,263
Foreign	1,533			228			656
Total current	8,194			6,505			7,958
Deferred:
Federal	(6,060		)	(8,382		)	4,539
State	(1,665		)	(364		)	(1,631		)
Foreign	(264		)	(3		)	(78		)
Total deferred	(7,989		)	(8,749		)	2,830
Tax impact of unrecorded tax benefits liability	983			1,143			(234		)
Provision for income taxes (Income tax benefit)	$	1,188		$	(1,101	)	$	10,554



	2019			2018			2017
Federal income tax at the statutory rate	$	435		$	5,902		$	5,518
State income taxes, net of federal benefit	526			(215		)	339
Difference between statutory and foreign tax rates	43			7			(560		)
Permanent differences ⁽¹⁾	1,139			725			300
Executive compensation limitation	7,596			1,167			—
Research and development	(4,911		)	(6,908		)	(2,380		)
Return to provision adjustment	(9		)	1,780			23
Change in liability for unrecognized tax benefits	1,191			1,768			7
Excess stock-based compensation benefit	(4,999		)	(8,907		)	(1,819		)
Change in valuation allowance	368			1,984			1,949
Tax effects of intercompany transactions	16			1,004			(277		)
Adjustments to deferred tax assets, net resulting from enactment of new tax law ⁽²⁾	—			—			7,601
Other	(207		)	592			(147		)
Provision for income taxes (Income tax benefit)	$	1,188		$	(1,101	)	$	10,554
Effective tax rate	57.4		%	(3.9		)%	66.9		%



	2019			2018
Deferred income tax assets:
Net operating loss carryforward	$	2,341		$	2,347
Deferred revenue	15,348			13,304
Deferred compensation	971			858
Lease liability	2,460			—
Inventory reserve	1,258			1,294
Stock-based compensation	10,769			3,758
Amortization	1,133			412
Research and development tax credit carryforward	4,957			5,193
Reserves, accruals, and other	3,394			3,094
Total deferred income tax assets	42,631			30,260
Deferred income tax liabilities:
Customer contract asset	(883		)	—
Right of use asset	(2,228		)	—
Depreciation	(3,715		)	(2,195		)
Amortization	(62		)	(57		)
Other	(1,237		)	(1,232		)
Total deferred income tax liabilities	(8,125		)	(3,484		)
Net deferred income tax assets before valuation allowance	34,506			26,776
Valuation allowance	(7,172		)	(7,429		)
Net deferred income tax assets	$	27,334		$	19,347

We have $1.2 million of state net operating losses (“NOLs”) which expire at various dates between 2029 and 2036. We also have a federal NOL of $0.8 million which expires in 2036, and is subject to limitation under Internal Revenue Code (“IRC”) Section 382. We have $0.1 million of federal R&D credits, which expire between 2034 and 2037, and are also subject to limitation under IRC Section 382. We have $9.2 million of Arizona R&D credits carrying forward, which expire at various dates between 2020 and 2034. In the U.K., Canada, and Australia, we have $8.0 million, $1.2 million, and $1.4 million of NOLs, respectively, which expire at various dates or may be carried forward indefinitely.

In preparing our consolidated financial statements, we have assessed the likelihood that deferred income tax assets will be realized from future taxable income. In evaluating the ability to recover its deferred income tax assets, we consider all available evidence, positive and negative, including our operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is more likely than not that some portion or all of the net deferred income tax assets will not be realized. We exercise significant judgment in determining our provision for income taxes, our deferred income tax assets and liabilities, and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred income tax assets.

As of December 31, 2019, we continue to demonstrate positive income in the U.S. federal and state tax jurisdictions; however, we have Arizona R&D tax credits expiring unutilized each year. Therefore, we have concluded that it is more likely than not that our Arizona R&D deferred tax asset will not be realized.

As of December 31, 2019, we have cumulative pre-tax losses in the U.K. and Canada, which limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, a full valuation allowance has been recorded for these jurisdictions. The amount of the deferred tax asset considered realizable; however, could be adjusted in future periods if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth. Although we also have cumulative pre-tax losses in Australia, we have determined that sufficient deferred tax liabilities will reverse in order to realize all assets except one long-lived intangible asset where there is not an expectation that the deferred tax asset may be realized. Therefore, we have recorded a partial valuation allowance for Australia.

We consider the undistributed earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We project that our foreign earnings will be utilized offshore for working capital and future foreign growth. The determination of the unrecognized deferred tax liability on those undistributed earnings is not practicable due to our legal entity structure and the complexity of U.S. and local country tax laws. If we decide to repatriate the undistributed foreign earnings, we will need to recognize the income tax effects in the period we change our assertion on indefinite reinvestment.

We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal, Arizona, and California income tax purposes. Management has made the determination that it is more likely than not that the full benefit of the R&D tax credit will not be sustained on examination and recorded a liability for unrecognized tax benefits of $6.1 million as of December 31, 2019. In addition, management accrued approximately $0.1 million for estimated uncertain tax positions related to certain federal income tax liabilities. Should the unrecognized tax benefit of $6.2 million be recognized, our effective tax rate would be favorably impacted.



	2019			2018			2017
Balance, beginning of period	$	6,058		$	4,243		$	4,050
Increase (decrease) in previous year tax positions	(615		)	213			379
Increase in current year tax positions	1,749			1,982			587
Decrease due to lapse of statutes of limitations	(331		)	(380		)	(773		)
Balance, end of period	$	6,861		$	6,058		$	4,243

Federal income tax returns for 2016 through 2018 remain open to examination by the U.S. Internal Revenue Service (the “IRS”), while state and local income tax returns for 2015 through 2018 also generally remain open to examination by state taxing authorities. The 2005 through 2014 income tax returns are only open to the extent that net operating loss or other tax attributes carrying forward from those years were utilized in 2015 through 2018. The foreign tax returns for 2015 through 2018 also generally remain open to examination. Our U.S. federal income tax return for fiscal year 2016 is currently under audit by the Internal Revenue Service.

We recognize interest and penalties related to unrecognized tax benefits within the provision (benefit) for income tax expense line in the accompanying consolidated statements of operations and comprehensive income. As of December 31, 2019 and 2018, we had accrued interest of $0.2 million and $0.1 million, respectively.