11. Income Taxes

Income (loss) from operations before income taxes consisted of the following (in thousands):


	Year ended December 31,
	2019		2018
Domestic	$	(26,003)	$	(22,050)
Foreign		(774)		(1,045)
Loss from operations before income taxes	$	(26,777)	$	(23,095)

Income tax expense consisted of the following (in thousands):


	Year ended December 31,
	2019		2018
Current (expense) benefit:
State	$	(68)	$	(53)
International		(10)		6
Deferred (expense) benefit:
Federal		33		(45)
State		(16)		(17)
International		—		14
Total income tax expense	$	(61)	$	(95)

The reconciliation of the federal statutory income tax rate of 21% for the years ended December 31, 2019 and 2018, to our effective income tax rate is as follows (in thousands):


	Year ended December 31,
	2019		2018
Expected income tax benefit at U.S. statutory rate	$	5,623	$	4,856
Difference between U.S. and foreign taxes		(21)		(4)
State tax benefit, net of federal taxes		734		461
Stock-based compensation		(327)		459
Meals and entertainment		(118)		(120)
Non-deductible officer compensation		(339)		(907)
Deferred tax changes due to new tax rate and other adjustments		243		1,043
Valuation allowance		(5,836)		(5,888)
Other		(20)		5
Total income tax expense	$	(61)	$	(95)

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Act”) took effect. The enactment of the 2017 Act requires the remeasurement of deferred taxes at the new corporation tax rate of 21%, for which we have recorded a provisional amount that reduces the net deferred tax assets, before valuation allowance, by $38.4 million in 2017. Due to a full valuation allowance, the change in deferred taxes was fully offset by the change in valuation allowance. For the years ended December 31, 2019 and 2018, we completed our analysis on the tax impact relating to the 2017 Act and no material changes were made to the provisional amounts recorded.

Other significant provisions that may impact income taxes in future years include: an exemption from U.S. tax on dividends of future foreign earnings, deductions related to foreign derived intangible income, and a minimum tax on certain foreign earnings. We do not expect these provisions to have material impact to our tax positions.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):


	December 31,		December 31,
	2019		2018
Deferred tax assets:
Accrued liabilities not currently deductible	$	1,248	$	1,929
Intangible assets—excess of tax basis over financial statement basis		15,464		17,729
Federal impact of deferred state taxes		6		3
Net operating losses		61,706		52,751
Stock-based compensation		1,670		1,761
Other		433		410
Total deferred tax assets		80,527		74,583
Deferred tax liabilities:
Intangible assets—excess of financial statement basis over tax basis		(143)		(206)
Property and equipment		(1,158)		(986)
Total deferred tax liabilities		(1,301)		(1,192)
Valuation allowance		(79,289)		(73,477)
Net deferred tax liabilities	$	(63)	$	(86)

Current	$	—	$	—
Non-current		(63)		(86)
	$	(63)	$	(86)

We had federal net operating loss (“NOL”) carryforwards of approximately $255.6 million and $220.1 million as of December 31, 2019 and 2018, respectively. NOLs generated prior to January 1, 2018 expire between 2021 and 2037. NOLs generated since January 1, 2018 can be carried forward indefinitely. In addition, as of December 31, 2019 and 2018 we had state NOL carryforwards of approximately $94.8 million and $77.8 million which expire between 2020 and 2039.

Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, provide for annual limitations on the utilization of net operating loss and credit carryforwards if we were to undergo an ownership change, as defined in Section 382. Changes in our equity structure and the acquisitions made by us in prior years resulted in such an ownership change. Currently, we do not expect the utilization of our net operating loss and tax credit carryforwards in the near term to be materially affected as no significant limitations are expected to be placed on these carryforwards as a result of our previous ownership changes.

We reduce the deferred tax asset resulting from future tax benefits by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some portion or all of these deferred taxes will not be realized. The timing of the reversal of deferred tax liabilities associated with tax deductible goodwill is not certain and thus not available to assure the realization of a portion of the deferred tax assets. However, the reversal of deferred tax liabilities associated with tax deductible goodwill can be a source of taxable income to support the realization of a deductible temporary difference that is scheduled to reverse into net operating losses with an unlimited carryforward period. Except for the deferred tax liabilities resulting from tax deductible goodwill, we have deferred tax assets in excess of deferred tax liabilities before application of a valuation allowance for the periods presented. As we have insufficient history of generating income, we have determined it is more likely than not that we will not realize the benefit of all our deferred tax assets and accordingly a valuation allowance of $79.3 million and $73.5 million against our deferred taxes was required at December 31, 2019 and 2018, respectively. The change in the valuation allowance for the years ended December 31, 2019 and 2018 was an increase of $5.8 million and an increase of $5.9 million, respectively, all of which was recorded in income tax expense. As we have no sustained history of generating book income, the ultimate future realization of these excess deferred tax assets is not more likely than not and thus subject to a valuation allowance.

We are subject to the accounting guidance for uncertain income tax positions. We believe that our income tax positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material adverse effect on our financial condition, results of operations, or cash flow.

Our policy for recording interest and penalties associated with audits and uncertain tax positions is to record such items as a component of income tax expense, and amounts recognized to date are not material. There are no material uncertain income tax positions during the years ended December 31, 2019 or 2018 and we do not expect our uncertain tax positions to have a material impact on our consolidated financial statements within the next twelve months. The total gross amount of unrecognized tax benefits was not material as of December 31, 2019 and 2018.

We file a U.S. federal and various state tax returns. The tax years 2007 to 2018 remain subject to examination by the Internal Revenue Service and most tax years since our incorporation are subject to examination by various state authorities.