INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The components of the income tax provision (benefit) from continuing operations for the year ended December 31, 2021 and 2020 are as follows:

	2021		2020
Current
Federal	$	—	$	—
State	880		—
Total current income tax expense	880		—
Deferred
Federal	(21,028)		—
State	(1,517)		—
Total deferred income tax benefit	(22,545)		—
Income tax benefit	$	(21,665)	$	—

Deferred income taxes reflect the net tax effect of temporary difference between amounts recorded for financial reporting purposes and amounts used for tax purposes. The major components of deferred tax assets and liabilities are as follows:

	2021		2020
Deferred tax assets:
Net operating loss carryforward	$	20,316	$	21,495
Business interest carryforward	2,992		1,651
Stock-based compensation	796		518
Accounts receivable allowance	209		362
Lease liabilities	33,008		1,569
Inventory reserve	290		26
Basis difference in goodwill	—		352
Transaction costs	1,027		—
Accrued liabilities	57		123
Property and equipment	—		373
Total deferred income tax assets	58,695		26,469
Deferred tax liabilities:
Intangibles and goodwill	30,614		—
Right-of-use assets	32,740		1,478
Debt issuance costs amortization	1,173		1,249
Property and equipment	1,754		—
Total deferred tax liabilities	66,281		2,727
Net deferred tax (liabilities) assets before valuation allowance	(7,586)		23,742
Valuation allowance	—		(23,742)
Net deferred taxes	$	(7,586)	$	—

A reconciliation of the statutory U.S. Federal income tax rate of 21% to the Company's effective income tax rate for the years ended December 31, 2021 and 2020 is as follows:

	2021	2020
U.S. Federal statutory rate	21.0%	21.0%
State and local, net of federal benefit	(13.0)%	5.0%
Derivative expense	(5.9)%	—%
Executive compensation	(8.5)%	—%
Other permanent difference	(0.7)%	(1.4)%
Stock-based compensation	0.5%	—%
Valuation allowance	75.6%	(24.6)%
Effective tax rate	69.0%	—%

Income tax expense/(benefit) for the years ended December 31, 2021 and 2020 was $(21,665) and $0, respectively, representing effective tax rates of 69.0% and 0%, respectively.

In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. In estimating future taxable income, the Company relies upon assumptions and estimates about future activities, including the amount of future federal and state pretax operating income that the Company will generate; the reversal of temporary differences; and the implementation of feasible and prudent tax planning strategies. Based on this analysis, and as a result of the future taxable income generated by the RideNow acquisition, the Company has determined that it is more likely than not that its deferred tax assets will be realized, and accordingly has released its full valuation allowance of $23,742 during 2021.

As of December 31, 2021 and 2020, the Company has federal net operating loss carryforwards of $91,246 and $82,733, respectively, a portion of which begins to expire in 2033. The Company’s state net operating loss carryforwards as of December 31, 2021 and 2020 are $17,878 and $16,291, respectively, a portion of which begin to expire in 2029. As a result of various ownership changes, the Company’s federal and state net operating losses are subject to limitations under Internal Revenue Code (“IRC”) Section 382. However, due to the Company’s projected income in future years and the indefinite-lived nature of the majority of its net operating losses available, none of these attributes are expected to expire unutilized as a result of the IRC Section 382 limitation analysis.

Based on the statutes of limitations in the applicable jurisdiction in which the Company operates, the Company is generally no longer subject to examinations by U.S. tax authorities in years prior to 2017.

U.S. Tax Reform

In March 2020, then President Trump signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. Economy. The Company does not expect the provisions of the legislation to have a significant impact on the effective tax rate or income tax payable and deferred income tax positions of the Company.