Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Our 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,
	2021		2020
Deferred income tax assets
Net operating loss carryforwards	$	143,917	$	57,763
Business interest limitation carryforwards	35,234		—
Tax credit carryforwards	18,828		12,422
Stock-based compensation	7,117		6,011
Compensation accruals	7,606		7,026
Lease liabilities	17,396		17,540
Accruals and reserves	4,542		1,004
Fixed assets	3,887		1,075
Gross deferred income tax assets	238,527		102,841
Valuation allowance	(176,872)		(44,307)
Total deferred income tax assets, net of valuation allowance	61,655		58,534
Deferred income tax liabilities
Intangible assets	(48,250)		(514)
Convertible senior notes	—		(45,616)
Right-of-use assets	(13,465)		(12,404)
Other	(1,141)		—
Total deferred income tax liabilities	(62,856)		(58,534)
Net deferred income tax assets and liabilities	$	(1,201)	$	—

The valuation allowance increased by $132,565 during the year ended December 31, 2021.

The valuation allowance decreased by $17,967 and increased by $24,264 during the years ended December 31, 2020 and 2019, respectively.

In determining the realizability of the net U.S. federal and state deferred tax assets, we consider numerous factors including historical profitability, estimated future taxable income, prudent and feasible tax planning strategies, and the industry in which we operate. Management reassesses the realization of the deferred tax assets each reporting period, which resulted in a valuation allowance against the full amount of our U.S. deferred tax assets for all periods presented. To the extent that the financial results of our U.S. operations improve in the future and the deferred tax assets become realizable, we will reduce the valuation allowance through earnings.

The following table represents our net operating loss ("NOL") carryforwards as of December 31, 2021 and 2020:

	December 31,
	2021		2020
Federal	$	611,296	$	227,751
Various states	18,777		12,576
Foreign	3,213		2,050

Federal NOL carryforwards are available to offset federal taxable income and begin to expire in 2025, with NOL carryforwards of $320,123 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 2021. 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.

Net research and development credit carryforwards of $18,828 and $12,422 are available as of December 31, 2021 and 2020, respectively, to reduce future tax liabilities. The research and development credit carryforwards begin to expire in 2026.

Deductible but limited federal business interest expense carryforwards of $149,710 and $867 are available as of December 31, 2021 and 2020, respectively, to offset future U.S. federal taxable over an indefinite period.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of NOL and income tax credit carryforwards that could be utilized annually in the future to offset taxable income and income tax liabilities. Any such annual limitation may significantly reduce the utilization of the NOLs and income tax credits before they expire. A Section 382 limitation study performed as of March 31, 2017 determined that we experienced an ownership change in 2006 with $1,506 of the 2006 NOL, and $32 of the 2006 research and development tax credit unavailable for future use. Furthermore, in connection with the acquisition of RentPath, RentPath experienced an ownership change that triggered Section 382. As of September 30, 2021, RentPath completed a Section 382 limitation study and, based on this analysis, we do not expect a reduction in our ability to fully utilize RentPath’s pre-change NOLs.

The components of loss before benefit for income taxes for the years ended December 31, 2021, 2020, and 2019 were $(114,262), $(17,582), and $(79,518), for federal purposes, respectively, and $(1,458), $(945), and $(1,287), 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,
	2021		2020		2019
U.S. federal income tax at statutory rate	21.00	%	21.00	%	21.00	%
State taxes (net of federal benefit)	9.06		25.23		4.71
Stock-based compensation	14.88		69.14		1.20
Permanent differences	(0.12)		(1.03)		(0.97)
Federal research and development credit	5.41		20.42		2.45
Change in valuation allowance	(41.89)		(132.88)		(29.73)
Other	(1.62)		1.32		1.34
Acquisition costs	(1.44)		—		—
Extinguishment of 2023 Notes	—		(3.20)		—
Effective income tax rate	5.28	%	—	%	—	%

We recorded an income tax benefit of $6,107 for the year ended December 31, 2021, which is primarily a result of a deferred tax liability created through our April 2, 2021 acquisition of RentPath and can be used to realize certain deferred tax assets against which we had previously recorded a full valuation allowance. Our deferred income tax benefit was partially offset by current state income tax expense recorded for the year ended December 31, 2021. We did not record any tax benefits for the years ended December 31, 2020 and 2019.

The difference between the U.S. federal income tax at statutory rate of 21% for the years ended December 31, 2021, 2020, and 2019, 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.

The following table summarizes the components of our income tax benefit for the periods presented:

	December 31,
	2021		2020		2019
Current income tax expense:
U.S. - State	$	1,215	$	—	$	—
Total current income tax expense	1,215		—		—
Deferred income tax benefit:
U.S. - State	(7,322)		—		—
Total deferred income tax benefit	(7,322)		—		—
Total income tax benefit	$	(6,107)	$	—	$	—

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,
	2021		2020
Unrecognized benefit—beginning of year	$	3,105	$	2,159
Gross decreases—prior year tax positions	32		—
Gross increases—current year tax positions	1,555		946
Unrecognized benefit—end of year	$	4,692	$	3,105

All of the unrecognized tax benefits as of December 31, 2021 and 2020 are accounted for as a reduction in our deferred tax assets. Due to our valuation allowance, none of the $4,692 and $3,105 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, 2021 and 2020 and no liability for accrued interest or penalties related to unrecognized tax benefits as of December 31, 2021.

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.