Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The effective tax rate as compared to the U.S. federal statutory rate of 21% differs primarily due to change in valuation allowance against deferred taxes and non-deductible expenses, partially offset by state income taxes and tax benefits associated with stock-based compensation expense and research and development tax credits.

Set forth below is a reconciliation of the components that caused our provision for income taxes to differ from amounts computed by applying the United States federal statutory rate:

	Year Ended December 31,
	2022		2021		2020
U.S. federal statutory income tax rate	21	%	21	%	21	%
State and local income taxes, net of federal benefit	9		(214)		3
Stock-based compensation expense	7		(426)		(3)
Non-deductible officers' compensation	(6)		47		—
Meals and entertainment	—		3		—
Change in valuation allowance	(37)		795		—
Other permanent differences	(1)		20		1
Research and development tax credits	5		(205)		(2)
Provision for income taxes	(2)	%	41	%	20	%

The provision for income tax consists of the following (in thousands):

	Year Ended December 31,
	2022		2021		2020
Current
Federal	$	1,313	$	20	$	3,982
State and local	686		346		5,444
Total current	1,999		366		9,426
Deferred
Federal	(854)		(10,966)		27,982
State and local	257		11,306		1,020
Total deferred	(597)		340		29,002
Total income tax provision	$	1,402	$	706	$	38,428

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

	December 31,
	2022		2021
Deferred income tax assets:
Net operating loss carryforwards	$	5,802	$	10,849
Research and development tax credits	18,558		15,966
Capitalized research and software costs	14,706		—
Stock-based compensation	5,105		3,965
Lease liability	14,260		13,983
Other	3,614		2,853
Total deferred tax assets	62,045		47,616
Valuation allowance	(43,776)		(17,217)
Deferred tax assets, net of valuation allowance	18,269		30,399
Deferred tax liabilities:
Capitalized research and software costs	—		(9,972)
Property and equipment	(4,914)		(5,024)
Intangible assets	(940)		(1,558)
Capitalized commissions	(4,217)		(3,296)
Lease asset	(6,249)		(11,056)
Other	(2,634)		(1,171)
Total deferred tax liabilities	(18,954)		(32,077)
Total net deferred tax liabilities	$	(685)	$	(1,678)

At December 31, 2022, we had state net operating loss carryforwards $66.0 million. The state net operating losses will begin to expire in 2028. At December 31, 2022, we also had federal and state research and development credit carryforwards of $8.7 million and $19.3 million, respectively. The federal credit carryforwards will begin to expire in 2040, while the state credit carryforwards apply indefinitely. Utilization of our net operating loss and credit carryforwards may be subject to annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. We have undertaken an analysis and have determined that there are no limitations on the tax attributes at December 31, 2022.

The change in the valuation allowance are as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Valuation allowance, at beginning of year	$	17,217	$	—	$	—
Increase in valuation allowance	26,559		17,217		—
Valuation allowance, at end of year	$	43,776	$	17,217	$	—

The following is a reconciliation of the total amounts of reserves for unrecognized tax benefits from uncertain tax positions (in thousands):

	Year Ended December 31,
	2022		2021		2020
Unrecognized tax benefit beginning of year	$	7,816	$	6,141	$	4,421
Increases-tax positions in current year	1,639		1,675		1,720
Unrecognized tax benefit end of year	$	9,455	$	7,816	$	6,141

The unrecognized tax benefits are recorded as a reduction to the deferred tax assets and liabilities.

At December 31, 2022 and 2021, we had no accrued interest and penalties related to uncertain income tax positions. We do not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

We are subject to taxation in the United States and various states. Due to the net operating loss carryforwards, our federal and state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception.