Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table presents the loss (income) before income taxes for the periods presented (in thousands): 

	For the Year Ended December 31,
	2021		2020		2019
Loss (income) attributable to common stockholders	$	70,152	$	233,967	$	(18,117)
Loss attributable to noncontrolling interest and redeemable noncontrolling interests	901,107		453,554		417,357
Loss before income taxes	$	971,259	$	687,521	$	399,240

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

	For the Year Ended December 31,
	2021		2020		2019
Current
Federal	$	—	$	—	$	(454)
State	—		—		(593)
Foreign	—		(1,422)		1,435
Total current (benefit) expense	—		(1,422)		388
Deferred
Federal	13,938		(61,387)		(7,634)
State	(4,667)		2,236		(972)
Foreign	—		—		—
Total deferred (benefit) provision	9,271		(59,151)		(8,606)
Total	$	9,271	$	(60,573)	$	(8,218)

The following table represents a reconciliation of the statutory federal rate and the Company’s effective tax rate for the periods presented:

	For the Year Ended December 31,
	2021		2020		2019
Tax provision (benefit) at federal statutory rate	(21.00)	%	(21.00)	%	(21.00)	%
State income taxes, net of federal benefit	(2.30)		(1.69)		(0.97)
Effect of noncontrolling and redeemable noncontrolling interests	19.48		13.85		21.95
Stock-based compensation	0.29		(2.98)		(1.96)
ASC 740-10 Reserve	—		—		(0.11)
Tax credits	(0.82)		(0.77)		(0.99)
Effect of valuation allowance	4.67		3.45		0.40
Other	0.63		0.33		0.62
Total	0.95	%	(8.81)	%	(2.06)	%

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 components of the Company’s deferred tax assets and liabilities for the periods presented (in thousands):

	December 31,
	2021		2020
Deferred tax assets
Accruals and prepaids	$	53,506	$	51,704
Deferred revenue	52,017		17,736
Net operating loss carryforwards	605,416		529,394
Stock-based compensation	15,345		22,224
Investment tax and other credits	95,889		86,175
Interest expense	5,644		16,627
UNICAP costs	61,671		2,141
Interest rate derivatives	39,784		53,057
Total deferred tax assets	929,272		779,058
Less: Valuation allowance	(136,682)		(91,322)
Gross deferred tax assets	792,590		687,736
Deferred tax liabilities
Capitalized costs to obtain a contract	171,219		93,441
Fixed asset depreciation and amortization	435,493		333,970
Deferred tax on investment in partnerships	287,631		342,230
Gross deferred tax liabilities	894,343		769,641
Net deferred tax liabilities	$	(101,753)	$	(81,905)

The Company accounts for investment tax credits as a reduction of income tax expense in the year in which the credits arise. As of December 31, 2021, the Company has an investment tax credit carryforward of approximately $75.5 million which begins to expire in the year 2033, if not utilized, $1.0 million of California enterprise zone credits which begin to expire in the year 2023, and $1.9 million of other state tax credits which begin to expire in the year 2022. As of December 31, 2020, the Company has an investment tax credit carryforward of approximately $66.0 million and California enterprise zone credits of approximately $1.0 million.

Generally, utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code (IRC) of 1986, as amended and similar state provisions. The Company performed an analysis to determine whether an ownership change under Section 382 of the Code had occurred and determined that no ownership changes were identified as of December 31, 2021. Vivint Solar, Inc. underwent an ownership change as of October 8, 2020 which is not expected to impact the utilization of its net operating loss carryforwards or tax credits.

As of December 31, 2021, the Company has approximately $7.2 million of federal and $8.9 million of state capital loss carryforwards. The Company believes its capital loss carryforwards are not likely to be realized.

Valuation allowances are provided against deferred tax assets to the extent that it is more likely than not that the deferred tax asset will not be realized. The Company’s management considers all available positive and negative evidence including its history of operating income or losses, future reversals of existing taxable temporary difference, taxable income in carryback years and tax-planning strategies. The Company has concluded that it is more likely than not that the benefit from certain federal and state tax credits and net operating loss carryforwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $136.7 million on the deferred tax assets relating to these federal and state tax credits and net operating loss carryforwards which is an increase of $45.4 million in 2021.

The Company sells solar energy systems to investment Funds. As the investment Funds are consolidated by the Company, the gain on the sale of the assets has been eliminated in the consolidated financial statements.

However, this gain is recognized for tax reporting purposes. The Company accounts for the income tax consequences of these intra-entity transfers, both current and deferred, as a component of income tax expense and deferred tax liability, net during the period in which the transfers occur.

Uncertain Tax Positions

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and local jurisdictions, where applicable. The statute of limitations for the tax returns varies by jurisdictions.

The Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company has analyzed its inventory of tax positions with respect to all applicable income tax issues for all open tax years (in each respective jurisdiction).

The Company’s policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations.  

As a result of the acquisition of Vivint Solar, the Company established an unrecognized tax benefit of $1.0 million as of December 31, 2021 and 2020 that, if recognized, would impact the Company’s effective tax rate.

The change in unrecognized tax benefits during 2021, 2020 and 2019, excluding penalties and interest, is as follows:

	For the Year Ended December 31,
	2021		2020		2019
Unrecognized tax benefits at beginning of the year	$	961	$	—	$	647
Reversal of prior year unrecognized tax benefits due to the expiration of the statute of limitations	—		—		(647)
Increases in unrecognized tax benefits as a result of tax positions taken during the prior period	—		961		—
Unrecognized tax benefits at end of the year	$	961	$	961	$	—

The Internal Revenue Service (“IRS”) audited one of the Company’s investment funds covered by the Company’s 2018 insurance policy in an audit involving a review of the fair market value determination of solar energy systems. The Company is unable to determine if this audit will result in an adverse final determination at this time.

The Company is subject to taxation and files income tax returns in the U.S., its territories, and various state and local jurisdictions. Due to the Company’s net losses, substantially all of its federal, state and local income tax returns since inception are still subject to audit.

The following table summarizes the tax years that remain open and subject to examination by the tax authorities in the most significant jurisdictions in which the Company operates:

	Tax Years
U.S. Federal	2018 - 2021
State	2017 - 2021

Net Operating Loss Carryforwards

As a result of the Company’s net operating loss carryforwards as of December 31, 2021, the Company does not expect to pay income tax, including in connection with its income tax provision for the year ended December 31, 2021. As of December 31, 2021, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $720.7 million and $2.3 billion, respectively, which will begin to expire in 2028 for federal purposes and in 2024 for state purposes. In addition, federal and certain state net operating loss carryforwards generated in tax years beginning after December 31, 2017 total $1.4 billion and $198.7 million, respectively, and have indefinite carryover periods and do not expire.