Income Taxes

The Company is taxed as a C Corporation. On December 22, 2017, the U.S. Tax Cuts and JOBS Act (the “Tax Reform Act”) was signed into law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.

On December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Reform Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Reform Act enactment date for companies to complete the accounting under ASC Topic 740 - Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Reform Act for which the accounting under ASC Topic 740 - Income Taxes is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Reform Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. As of December 31, 2017, the Company had recorded its best estimate for the remeasurement of the deferred tax assets and liabilities. As of December 31, 2018, management recorded immaterial true-up adjustments to its year-end 2018 provisional estimates and believes that its income tax provision reflects guidance issued by the Internal Revenue Service.

The benefit from income taxes for December 31, 2019 and 2018 consists of the following:



	For the Years Ended
(in thousands)	December 31, 2019			December 31, 2018
Current tax provision
U.S. Federal	$	69		$	16
State and local	258			94
Total current tax provision	327			110

Deferred tax benefit
U.S. Federal	(356		)	(421		)
State and local	(253		)	(324		)
Total deferred tax benefit	(609		)	(745		)
Benefit from income taxes	$	(282	)	$	(635	)

In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets. As of December 31, 2019, the Company achieved three years of cumulative pre-tax income after considering permanent items and is forecasting future taxable income. After giving consideration to these factors, management concluded that it was more likely than not that the deferred tax assets would be fully realized, and as a result, no valuation allowance against the deferred tax assets was deemed necessary at December 31, 2019 and 2018.

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



(in thousands)	As of December 31, 2019			As of January 1, 2019
Deferred tax assets:
Accrued expenses	$	850		$	231
Allowance for doubtful accounts	81			64
Intangibles	987			1,186
Goodwill	4,257			3,613
Startup costs	101			112
Deferred rent	—			184
Percentage of completion	105			67
Stock-based compensation	679			566
Net operating losses and credits	841			1,434
Interest	507			289
Lease liabilities	5,960			—
Other	176			40
Total deferred tax assets	14,544			7,786

Deferred tax liabilities:
Fixed assets	(3,897		)	(3,610		)
Right-of-use assets	(5,586		)	—
Debt discounts	(275		)	—
Total deferred tax liabilities	(9,758		)	(3,610		)

Net deferred tax asset	$	4,786		$	4,176

At December 31, 2019, the Company had tax-effected federal net operating loss carryforwards of approximately $1.1 million which can be carried forward indefinitely. At December 31, 2018, there were $1.2 million in net operating loss carryforwards.

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:



	For the Years Ended
	December 31, 2019		December 31, 2018
Federal statutory income tax rate	21.0	%	21.0	%
State income taxes, net of federal tax effect	0.8	%	5.5	%
Change in uncertain tax benefits	(8.0	)%	—	%
Stock based compensation – restricted stock	(7.5	)%	(1.2	)%
Return to provision adjustment	4.8	%	7.3	%
Permanent differences	(9.8	)%	(12.4	)%
Tax credits	10.8	%	5.2	%
Other	1.6	%	0.2	%
Effective tax rate	13.7	%	25.6	%

The Company is subject to taxation in various jurisdictions. The Company’s 2016 through 2018 tax returns are subject to examination by U. S. federal authorities. The Company’s tax returns are subject to examination by various state authorities for the years 2016 and forward.

The Company has recorded a liability for unrecognized tax benefits related to tax positions taken on its various income tax returns in open tax periods. If recognized, the entire amount of unrecognized tax benefits would favorably impact the effective tax rate that is reported in future periods. The total unrecognized tax benefits are expected to be reduced by $0.4 million within the next 12 months. Interest and penalties related to uncertain income tax positions are included as a component of income tax expense in the consolidated financial statements.

The following is a reconciliation of the beginning and ending unrecognized tax benefits:



	December 31, 2019		December 31, 2018
Balance at beginning of period	$	—	$	—
Gross increases in prior period tax positions	722		—
Gross increases in current period tax positions	408		—
Balance at end of period	$	1,130	$	—

Of the unrecognized tax benefits, a liability of $0.4 million for unrecognized tax benefits, including accrued interest and penalties, was included in accrued expenses and other current liabilities on the accompanying consolidated balance sheets. The remaining amount of $0.7 million would be settled through the utilization of net operating loss and other carry over attributes and is reflected as a reduction of the deferred tax assets on the accompanying consolidated balance sheets. The amount of interest and penalties charged or credited to income tax expense as a result of the unrecognized tax benefits was not significant during the year ended December 31, 2019.