Income Taxes

12 Months Ended

Dec. 31, 2020

Income TaxesOur deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table represents the significant components of our deferred tax assets and liabilities for the periods presented:


	December 31,
	2020		2019
Deferred income tax assets
Net operating loss carryforwards	$	57,763	$	49,211
Tax credit carryforwards	12,422		8,638
Stock-based compensation	6,011		5,142
Compensation accruals	7,026		2,297
Lease liability	17,540		18,404
Accruals and reserves	2,079		795
Gross deferred income tax assets	102,841		84,487
Valuation allowance	(44,307)		(62,274)
Total deferred income tax assets, net of valuation allowance	58,534		22,213
Deferred income tax liabilities
Intangible assets	(514)		(605)
Prepaid expenses	—		(1,688)
Convertible senior notes	(45,616)		(5,359)
Right-of-use assets	(12,404)		(13,579)
Fixed assets	—		(982)
Total deferred income tax liabilities	(58,534)		(22,213)
Net deferred income tax assets and liabilities	$	—	$	—

The valuation allowance decreased by $17,967 during the year ended December 31, 2020. This decrease did not result in the recognition of an income tax benefit through operations as it was driven by the equity components of the 2023 and 2025 notes (see Note 15) and partially offset by the impact from the current year pretax loss.

The valuation allowance increased by $24,264 and $8,192 during the years ended December 31, 2019 and 2018, respectively.

The following table represents our net operating loss ("NOL") carryforwards as of December 31, 2020 and 2019:


	December 31,
	2020		2019
Federal	$	227,751	$	195,133
Various states	12,576		10,421
Foreign	2,050		1,212

Federal NOL carryforwards are available to offset federal taxable income and begin to expire in 2025, with NOL carryforwards of $142,420 generated after 2017 available to offset future U.S. federal taxable income over an indefinite period. State NOL carryforwards are available to offset future taxable income and began to expire in 2020. NOL carryforward periods for the various states jurisdictions generally range from 5 to 20 years. Foreign NOL carryforward periods for foreign federal and provincial jurisdictions are generally 20 years. Additionally, net research and development credit carryforwards of $12,422 and $8,638 are available as of December 31, 2020 and 2019, respectively, to reduce future tax liabilities. The research and development credit carryforwards begin to expire in 2026.

Current tax laws impose substantial restrictions on the utilization of research and development credits and NOL carryforwards in the event of an ownership change, as defined by Internal Revenue Code Sections 382 and 383. Such an event may significantly limit our ability to utilize our net NOLs and research and development tax credit carryforwards. During 2017, we completed a Section 382 study. The study determined that we underwent an ownership change in 2006. Due to the Section 382 limitation determined on the date of the change in control in 2006, the NOL and research and development credit carryforwards have been reduced by $1,506 and $32, respectively.

The components of loss before benefit for income taxes for the years ended December 31, 2020, 2019, and 2018 were $(17,582), $(79,518), and $(41,978), for federal purposes, respectively, and $(945), $(1,287), and $0, for foreign purposes, respectively.

The following table is a reconciliation of the U.S. federal income tax at statutory rate to our effective income tax rate:


	December 31,
	2020		2019		2018
U.S. federal income tax at statutory rate	21.00	%	21.00	%	21.00	%
State taxes (net of federal benefit)	25.23		4.71		5.67
Stock-based compensation	69.14		1.20		7.51
Permanent differences	(1.03)		(0.97)		(0.57)
Federal research and development credit	20.42		2.45		4.26
Change in valuation allowance	(132.88)		(29.73)		(37.33)
Other	1.32		1.34		(0.54)
Extinguishment of 2023 Notes	(3.20)		—		—
Effective income tax rate	—	%	—	%	—	%

We did not record any tax benefits for the years ended December 31, 2020, 2019, and 2018. The difference between the U.S. federal income tax at statutory rate of 21% for the years ended December 31, 2020, 2019, and 2018, and our effective tax rate in all periods is primarily due to a full valuation allowance related to our U.S. deferred tax assets. For the year ended December 31, 2020, the difference between our estimated statutory state income tax rate of 7.09% and the state income tax rate of 25.23% as reported in the rate reconciliation is primarily due to the impact of tax deductions for stock-based compensation which provide permanent and favorable differences between pre-tax operating losses for financial reporting purposes and losses reported for income tax purposes. Our reported state income tax rate of 25.23% differs from our effective state income tax rate of 0% primarily due to a full valuation allowance related to our state deferred tax assets.

We account for uncertainty in income taxes in accordance with ASC 740. Tax positions are evaluated utilizing a two-step process, whereby we first determine whether it is more likely than not that a tax position will be sustained upon examination by the tax authority, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The following table summarizes the activity related to unrecognized tax benefits:


	December 31,
	2020		2019
Unrecognized benefit—beginning of year	$	2,159	$	1,663
Gross decreases—prior year tax positions	—		(127)
Gross increases—current year tax positions	946		623
Unrecognized benefit—end of year	$	3,105	$	2,159

All of the unrecognized tax benefits as of December 31, 2020 and 2019 are accounted for as a reduction in our deferred tax assets. Due to our valuation allowance, none of the $3,105 and $2,159 of unrecognized tax benefits would affect our effective tax rate, if recognized. We do not believe it is reasonably possible that our unrecognized tax benefits will significantly change in the next twelve months.

We recognize interest and penalties related to unrecognized tax benefits as income tax expense. There was no interest or penalties accrued related to unrecognized tax benefits for each year ended December 31, 2020 and 2019 and no liability for accrued interest or penalties related to unrecognized tax benefits as of December 31, 2020.

Our material income tax jurisdictions are the United States (federal) and Canada (foreign). As a result of NOL carryforwards, we are subject to audit for all tax years for federal and foreign purposes. All tax years remain subject to examination in various other jurisdictions that are not material to our consolidated financial statements.