Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date loss, adjusted for discrete items, if any, that are taken into account in the relevant period. The Company’s annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes and changes in the Company’s valuation allowance.

The Company recorded an income tax benefit of $0.1 million and less than $0.1 million for the three months ended September 30, 2022 and 2021, respectively. The Company recorded an income tax benefit of $2.6 million and income tax expense of $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. The Company’s income tax benefit for the three months ended September 30, 2022 primarily reflects the discrete impact for reduction of indefinite-lived deferred tax liabilities resulting from the impairment of book goodwill. For the three months ended September 30, 2021, the income tax benefit primarily reflects the reversal of a tax accrual related to the ALG divestiture. The Company’s income tax benefit for the nine months ended September 30, 2022 primarily reflects the release of valuation allowance resulting from net deferred tax liabilities recorded in Digital Motors acquisition accounting providing a source of income in assessing realization of consolidated net deferred tax assets. For the nine months ended September 30, 2021, the Company’s income tax expense is primarily associated with state income taxes and the amortization of tax-deductible goodwill that is not an available source of income to realize deferred tax assets. The Company continues to maintain a full valuation allowance as it is more likely than not that the Company’s net deferred tax assets will not be realized.

There were no material changes to the Company’s unrecognized tax benefits in the nine months ended September 30, 2022. In the fourth quarter of 2021, there was a $1.1 million increase in unrecognized tax benefit primarily related to bonus expense that does not qualify as a federal income tax deduction when accrued for financial reporting purposes. The Company expects the amount of unrecognized tax benefits to decrease by $1.1 million during the fiscal year as a result of applying for a change in accounting method with the filing of the tax return.

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 IRS and various state taxing authorities. The Company is not currently under Internal Revenue Service or state tax examination.