17. Income Taxes

Loss before income taxes consisted of the following (in thousands):


	Year ended December 31,
	2019		2018		2017
United States	$	(48,898)	$	(44,137)	$	(56,852)
International		2,184		2,400		1,695
Total	$	(46,714)	$	(41,737)	$	(55,157)

A significant portion of our international income is earned by foreign branches of our United States parent corporation. The income of our foreign branches has been included as part of the United States jurisdiction in the table above.

Income tax expense for 2019, 2018 and 2017, was composed of the following (in thousands):


	Year ended December 31,
	2019		2018		2017
Current:
Federal	$	—	$	—	$	—
State		32		26		36
Foreign		2,144		1,454		1,196
Total current income tax expense		2,176		1,480		1,232
Foreign		(44)		(133)		(90)
Total deferred income tax benefit		(44)		(133)		(90)
Total income tax expense	$	2,132	$	1,347	$	1,142

For 2019, 2018 and 2017, our effective tax rate differs from the amount computed by applying the statutory federal and state income tax rates to net loss before income tax, primarily as the result of changes in our valuation allowance.


	Year ended December 31,
	2019		2018		2017
Federal tax benefit at statutory rate	21.0	%	21.0	%	34.0	%
State tax benefit net of federal effect	6.0		6.3		8.8
Foreign taxes	(2.9)		(1.7)		(0.7)
Change in valuation allowance	(29.0)		(29.8)		42.8
Change in federal tax rate	—		—		(86.1)
Compensation limitation 162(m)	(1.5)		—		—
Credits	4.6		3.7		3.4
Stock-based compensation	(1.6)		(2.3)		(3.9)
Non-deductible expenses and other	(1.2)		(0.4)		(0.4)
Effective tax rate	(4.6)	%	(3.2)	%	(2.1)	%

Income tax expense for 2019, 2018 and 2017 relates to state minimum income tax, income tax on our earnings in foreign jurisdictions and withholding taxes on sales to customers in certain jurisdictions. A significant portion of our international income is earned by foreign branches of our United States parent corporation and thus is already subject to United States taxation. The income of our foreign branches has been included as part of the United States jurisdiction in the table above.

The components of net deferred tax assets at December 31, 2019 and 2018 consisted of the following (in thousands):


	As of December 31,
	2019		2018
Deferred tax assets / liabilities:
Accruals and allowances	$	7,331	$	6,037
Lease liabilities		3,176		—
Loss (Gains) on foreign exchange		110		(72)
Net operating loss carryforwards		86,912		76,648
Depreciation and amortization		1,739		2,345
R&D tax credits		21,474		17,536
Stock-based compensation		4,038		5,755
Capitalized commissions		(4,118)		(3,915)
Right-of-use assets		(2,764)		—
Valuation allowance		(117,721)		(104,201)
Net deferred tax assets	$	177	$	133

Our accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of our net deferred tax assets. We primarily considered such factors as our history of operating losses, the nature of our deferred tax assets and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, we do not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying consolidated balance sheets.

As of December 31, 2019, we had net operating loss carryforwards of approximately $365.3 million and $173.4 million available to reduce future taxable income, if any, for both federal and state income tax purposes, respectively. The federal and state net operating loss carryforwards will expire at various dates beginning 2027 and 2028, respectively. Approximately $74.1 million of the federal net operating loss included above, can be carried forward indefinitely.

As of December 31, 2019, we had federal and California R&D tax credit carryforwards at December 31, 2019 of approximately $16.4 million and $17.8 million, respectively. If not utilized, the federal R&D tax credit carryforward will expire in various portions beginning 2027. The California R&D tax credit can be carried forward indefinitely.

A limitation may apply to the use of the net operating loss and credit carryforwards, under provisions of the Internal Revenue Code that are applicable if we experience an “ownership change”. That may occur, for example, as a result of trading in our stock by significant investors as well as issuance of new equity. Should these limitations apply, the carryforwards would be subject to an annual limitation, resulting in a substantial reduction in the gross deferred tax assets before considering the valuation allowance. Further, a portion of the carryforwards may expire before being applied to reduce future earnings.

We follow the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. No non-current liability related to uncertain tax positions is recorded in the financial statements as the deferred tax assets have been presented net of these unrecognized tax benefits. At December 31, 2019 and 2018, our reserve for unrecognized tax benefits was approximately $10.3 million and $8.3 million, respectively. Due to the full valuation allowance at December 31, 2019, current adjustments to the unrecognized tax benefit will have no impact on our effective income tax rate; any adjustments made after the valuation allowance is released will have an impact on the tax rate. We do not anticipate any significant change in our uncertain tax positions within 12 months of this reporting date. We include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary.

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


	Year ended December 31,
	2019		2018		2017
Unrecognized tax benefits, beginning of year	$	8,340	$	6,839	$	5,306
Gross increases—tax positions from prior periods		(40)		(31)		34
Gross increases—tax positions from current period		2,004		1,532		1,499
Unrecognized tax benefits, end of year	$	10,304	$	8,340	$	6,839

We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2019, the statute of limitations is open for all tax years from inception, that is, for the period from July 23, 2007 (date of inception) to December 31, 2019 and forward for federal and state tax purposes. The foreign statutes of limitation are generally two to four years.

It is our intention to reinvest the earnings of our non-U.S. subsidiaries in their operations. As of December 31, 2019, the Company had not made a provision for any incremental foreign withholding taxes or dividend distribution taxes on approximately $10.8 million of the excess of the amount of net income for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. If these earnings were repatriated to the U.S., the deferred tax liability associated with these temporary differences would result in a nominal amount of withholding taxes.