Income Taxes

The components of the Company’s income tax provision are as follows (in thousands):



	Year Ended December 31,
	2016		2015		2014
Current:
Federal	$	—	$	—	$	—
State	74		25		63
Total current provision	74		25		63
Deferred:
Federal	547		547		540
State	34		34		37
Total deferred provision	581		581		577
Total income tax provision	$	655	$	606	$	640

As described below, the Company has established a valuation allowance against its net deferred tax assets as the Company has determined that it is more likely than not that the deferred tax assets will not be realized. The Company’s 2016, 2015, and 2014 income tax provisions of $0.7 million, $0.6 million, and $0.6 million, respectively, primarily reflect the amortization of tax deductible goodwill that is not an available source of income to realize deferred tax assets.

The overall effective income tax rate differs from the statutory federal rate of 34% as follows:



	Year Ended December 31,
	2016		2015		2014
Income tax benefit based on the federal statutory rate	34.0	%	34.0	%	34.0	%
State income taxes, net of federal benefit	3.2		2.4		2.0
Nondeductible expenses	(1.7	)	(0.3	)	(0.7	)
Change in valuation allowance	(33.0	)	(30.7	)	(34.7	)
Stock-based compensation	(4.1	)	(6.4	)	(2.0	)
Other	—		0.1		0.1
Overall effective income tax rate	(1.6	)%	(0.9	)%	(1.3	)%

The components of deferred tax assets (liabilities) are as follows (in thousands):



	December 31,
	2016			2015
Deferred income tax assets:
Net operating loss carryforwards	$	95,342		$	66,340
Stock-based compensation	25,278			24,192
Accrued expenses	3,338			4,016
Research and development tax credits	543			543
Other	371			306
Gross deferred tax assets	124,872			95,397
Valuation allowance	(115,689		)	(84,167		)
Net deferred tax assets	9,183			11,230
Deferred tax liabilities:
Property, equipment and software	(5,424		)	(6,734		)
Intangible assets and goodwill	(6,753		)	(6,909		)
Gross deferred tax liabilities	(12,177		)	(13,643		)
Total net deferred tax liabilities	$	(2,994	)	$	(2,413	)

The federal benefit related to the state tax effect of each type of temporary difference and carryforward is presented within each component of deferred tax assets and liabilities as shown in the chart above as of December 31, 2016 and December 31, 2015, respectively. This is a change in presentation from the prior year income tax footnote as the federal benefit related to the state tax effect of each type of temporary difference and carryforward was presented within one component titled “State taxes”.

The net deferred tax liability at December 31, 2016 and 2015 relates to amortization of tax deductible goodwill that is not an available source of income to realize deferred tax assets. Accordingly, the net deferred tax liability does not reduce the need for a valuation allowance related to the Company’s net deferred tax assets.

At December 31, 2016, the Company had federal and state net operating loss carryforwards of $250.2 million and $176.5 million, respectively. The Company’s federal and state net operating loss carryforwards begin to expire in the years ending December 31, 2025 and 2017, respectively. At December 31, 2016, the Company had federal and state research and development tax credit carryforwards of approximately $0.8 million and $0.4 million, respectively. The federal tax credit carryforwards begin to expire in the year ending December 31, 2028. The state tax credit carryforward can be carried forward indefinitely.

The Internal Revenue Code of 1986, as amended, imposes substantial restrictions on the utilization of net operating losses and other tax attributes in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use pre-change net operating loss and research tax credits may be limited as prescribed under IRC Sections 382 and 383. Events which may cause limitation in the amount of the net operating losses and credits that the Company utilizes in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. As a result of historical equity issuances, the Company has determined that annual limitations on the utilization of its net operating losses and credits do exist pursuant to IRC Sections 382 and 383, however, such limitations are not expected to impact the Company’s ability to utilize these deferred tax assets prior to their statutory expiration dates.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2016. Such objective evidence limits the ability to consider other subjective evidence such as its projections for future growth. On the basis of this evaluation, at December 31, 2016, a valuation allowance of $115.7 million has been recorded since it is more likely than not that the deferred tax assets will not be realized.

The change in the valuation allowance for the years ended December 31, 2016, 2015, and 2014 is as follows (in thousands):



	Year Ended December 31,
	2016		2015		2014
Valuation allowance, at beginning of year	$	84,167	$	64,449	$	47,858
Increase in valuation allowance- share-based compensation guidance impact	17,959		—		—
Valuation allowance, at beginning of year, as adjusted	$	102,126	$	64,449	$	47,858
Increase in valuation allowance	13,563		19,718		16,591
Valuation allowance, at end of year	$	115,689	$	84,167	$	64,449

As described in Note 2, the Company early adopted the new share-based compensation guidance during the third quarter of 2016. The adoption of this guidance had no impact on either accumulated deficit as of January 1, 2016 or 2016 income tax expense as the Company believes that it is more likely than not that the excess tax benefits recognized as deferred tax assets due to the adoption of this guidance will not be realized. Therefore the Company has recorded a full valuation allowance against these excess tax benefits.

The following is a reconciliation of the total amounts of unrecognized tax benefits (in thousands):



	Year Ended December 31,
	2016		2015			2014
Unrecognized tax benefit, beginning of year	$	3	$	46		$	(4	)
Additions based on current year tax positions	—		—			21
Additions for prior years' tax positions	—		—			29
Settlements with tax authorities	—		(13		)	—
Reductions for prior years' tax positions	—		(30		)	—
Unrecognized tax benefit, end of year	$	3	$	3		$	46

Since there is a full valuation allowance recorded against the deferred tax assets, any subsequent reductions of the valuation allowance and recognition of the associated tax benefit would impact the effective tax rate.

The Company’s policy is to recognize interest and penalties related to uncertain tax positions, if any, in the income tax provision. At December 31, 2016, accrued interest and penalties related to uncertain tax positions were insignificant. The Company does not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

The Company is subject to United States federal and state taxation. Due to the presence of net operating loss carryforwards, all income tax years remain open for examination by the Internal Revenue Service (“IRS”) and various state taxing authorities. The Company is currently under state tax examination for the 2013 and 2014 tax years. The Company does not anticipate that this pending tax examination will result in a material tax assessment.