Income Taxes

12 Months Ended

Dec. 31, 2019

Loss before income tax provision (benefit) consisted of the following (in thousands):


	For the year ended December 31,
	2019		2018		2017
United States	$	(47,235)	$	(50,268)	$	(44,246)
Foreign	(760)		444		(119)
Total	$	(47,995)	$	(49,824)	$	(44,365)

The provision (benefit) for income taxes consisted of the following (in thousands):


	For the year ended December 31,
	2019		2018		2017
Current
State	$	59	$	48	$	42
Foreign	252		203		19
Total Current	$	311	$	251	$	61

Deferred
Federal	$	(65)	$	(8)	$	—
Foreign	(107)		4		—
Total Deferred	$	(172)	$	(4)	$	—

Total	$	139	$	247	$	61

During the years ended December 31, 2019, 2018 and 2017, we recorded a federal income tax benefit of $65,000, $8,000, and $0, respectively. That benefit was primarily related to the allocation of tax expense (benefit) between continuing operations and other comprehensive income (loss) when applying the exception to the ASC 740 intraperiod tax allocation rule. Intraperiod tax allocation rules require us to allocate the provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income. In periods in which we have a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive income, we must allocate the tax provision to the other categories of earnings and then record a related tax benefit in continuing operations. This exception to the general rule applies even when a valuation allowance is in place at the beginning and end of the year.

The items accounting for the difference between income taxes computed at the federal statutory income tax rate and the provision for income taxes consisted of the following (in thousands):


	For the year ended December 31,
	2019			2018			2017
Federal statutory rate	21.0		%	21.0		%	35.0		%
Effect of:
Tax benefit at federal statutory rate	$	(10,079)		$	(10,463)		$	(15,528)
State taxes, net of federal benefit	(5,015)			(2,587)			(1,802)
Revaluation of deferred tax items due to tax rate change (federal and state)	—			—			22,880
Revaluation of deferred tax asset for current year net operating loss due to tax rate change	—			—			4,134
Section 162(m) limitations	2,944			1,625			37
Stock-based compensation	(14,728)			(2,327)			(559)
Permanent differences including gain on foreign restructuring, and meals & entertainment	1,103			2,815			5,663
Tax benefit of federal R&D credit	(3,141)			(3,289)			(2,366)
Recognition of excess tax benefits related to share-based payments	—			—			(3,606)
Valuation allowance	29,236			14,044			(8,586)
Other	(181)			429			(206)
Total income tax provision	$	139		$	247		$	61

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


	As of December 31,
	2019		2018
Deferred tax assets:
Property and equipment	$	6	$	18
Accruals and reserves	197		283
Deferred rent	1,599		1,601
Compensation and benefits	16,391		13,925
Deferred revenue	5,973		5,338
Net operating loss and credits	78,983		51,931
Other	1,559		701
Total deferred tax assets	104,708		73,797
Valuation allowance	(86,580)		(72,683)
Total deferred tax assets	18,128		1,114
Deferred tax liabilities:
Property and equipment	(599)		(529)
Convertible Notes	(14,598)		—
Other deferred tax liabilities	(2,822)		(587)
Deferred tax liabilities	(18,019)		(1,116)
Total	$	109	$	(2)

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2019. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, we recognized a full valuation allowance against our net US deferred tax asset at December 31, 2019, because we believe it is more likely than not that these benefits will not be realized.

As of December 31, 2019, we have federal and state net operating loss carryforwards of approximately $250.3 million and $203.8 million, respectively, available to reduce any future taxable income. The federal net operating loss carryforwards will expire in varying amounts beginning in 2034. As a result of the TCJA the federal and some state net operating losses incurred after 2017 will have an indefinite carryforward. The state net operating loss carryforwards will expire in varying amounts beginning in 2021. Additionally, we have total net operating loss carryforwards from international operations of $1.7 million that do not expire. We also have approximately $12.6 million of federal and $2.2 million of state tax credit carryforwards as of December 31, 2019. The federal credits will expire in varying amounts between the years 2034 and 2038. The state credits expire beginning in 2021. Utilization of our net operating loss and tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by Section 382 of the Internal Revenue Code, as amended, and similar state provisions.

A reconciliation of the gross unrecognized tax benefits is as follows (in thousands):


	For the year ended December 31,
	2019		2018		2017
Unrecognized tax benefits-beginning of period	$	182	$	191	$	168
Additions for tax positions related to prior year	—		—		—
Reductions for tax positions related to prior year	—		—		—
Foreign currency adjustments	(4)		(9)		23
Additions for tax positions related to current year	—		—		—
Unrecognized tax benefits-end of period	$	178	$	182	$	191

We have analyzed our inventory of tax positions taken with respect to all applicable income tax issues for all open tax years. The gross unrecognized tax benefits, if recognized, would not materially affect the effective tax rate as of December 31, 2019, due to the availability of net operating losses.

We do not expect our gross unrecognized tax benefits to change significantly over the next 12 months. Our policy is to classify interest and penalties associated with uncertain tax positions, if any, as a component of our income tax provision. Interest and penalties were not significant during the years ended December 31, 2019, 2018 and 2017.

We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2019, tax years for 2015 through 2018 are subject to examination by the tax authorities. Generally, as of December 31, 2019, we are no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2015. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward.