13. INCOME TAXES

The components of the provision for income tax expense are as follows:


	Year Ended December 31,
	2019		2018
Current:
Federal	$	—	$	—
State		319,978		77,494
Foreign		261,549		306
		581,527		77,800
Deferred
Federal		17,542		—
State		14,948		—
Foreign		(117,036)		—
		(84,546)		—
Total provision (benefit) for income taxes	$	496,981	$	77,800

The Company is subject to United States federal and state income taxes at an approximate rate of 24.58%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:


	Year Ended December 31,
	2019			2018
Statutory tax rate		21.00	%		21.00	%
State taxes		0.35	%		4.02	%
Permanent differences		(3.85)	%		(0.57)	%
Unrecognized tax benefit		(0.67)	%		—	%
Share-based compensation		11.51	%		(10.46)	%
Foreign tax rate differential		(1.68)	%		(0.10)	%
Valuation allowance		(140.59)	%		(15.43)	%
Prior year true up items		109.08	%		—	%
Other net		(0.65)	%		1.19	%
Total		(5.50)	%		(0.35)	%

Deferred tax assets consist of the following at:


	December 31,
	2019		2018
Deferred tax assets:
Net operating loss carryforward	$	12,789,390	$	6,186,379
Temporary differences		435,559		598,732
Lease liability		310,792		—
Share-based compensation		6,455,843		228,989
Total gross deferred tax assets	$	19,991,584	$	7,014,100
Deferred tax liabilities:
Property and equipment		(145,526)		(439,388)
Intangibles/Goodwill		(179,619)		—
Right of use lease asset		(310,730)		—
Valuation allowance		(19,271,163)		(6,574,712)
Net deferred tax assets	$	84,546	$	—

At December 31, 2019, the Company had federal and state net operating losses of approximately $48.1 million and $37.5 million, respectively, which could be subject to certain limitations under section 382 of the Internal Revenue Code. Out of the federal net operating loss, approximately $8.7 million will carry forward 20 years and can offset 100% of future taxable income; and $39.4 million carries forward indefinitely and can offset 80% of taxable income. Utilization of the net operating loss carryforwards are subject to various limitations due to the ownership change limitations provided by Internal Revenue Code (IRC) Section 382 and similar state provisions. As of December 31, 2019, the Company conducted an IRC Section 382 analysis with respect to its net operating loss carryforwards and determined there was an insignificant limitation.

The Company has provided a valuation allowance at December 31, 2019 and 2018 of $19,271,163 and $6,574,712, respectively, for its net deferred tax assets as it cannot conclude it is more likely than not all of the estimated net deferred tax assets will be realized. The valuation allowance increased by $12,696,451 and increased by $3,474,318 during the years ended December 31, 2019 and 2018, respectively.

Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and accordingly, no provision for applicable income taxes has been provided thereon. Upon distribution of those earnings, the Company would be subject to withholding taxes payable to various foreign countries. As of December 31, 2019, the undistributed earnings of the Company’s foreign subsidiaries were immaterial.

As of December 31, 2019, the Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. A reconciliation of the beginning and ending amount of gross unrecognized benefits is as follows:


		Year Ended December 31,
		2019		2018

Unrecognized tax benefits - beginning of year	$	-	$	-
Gross increase for tax positions of prior years		53,699		-
Gross decrease for federal tax rate change for tax positions of prior years		-		-
Gross increase for tax positions of current year		-		-
Settlements		-		-
Lapse of statute of limitations		-		-
Unrecognized tax benefits - end of year		-		-
	$	53,699	$	-

The unrecognized tax benefits relate primarily to state taxes. As of December 31, 2019, the total amount of unrecognized tax benefits that would affect the Company effective tax rate, if recognized, is $60,685. The Company's policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2019, the Company accrued interest or penalties related to uncertain tax positions in the amount of $6,986. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. Because the Company has net operating loss carryforwards, there are open statues of limitations in which federal, state and foreign taxing authorities may examine the Company's tax returns for all years from December 31, 2011 through the current period.