Income Taxes

12 Months Ended

Dec. 31, 2019

13. Income Taxes

The components of the provision for income taxes, net for the years ended December 31, 2019, 2018 and 2017 is presented below:



Year ended December 31, 2019	Current		Deferred		Total
	(in thousands)
Federal	$	—	$	—	$	—
State	874		—		874
Foreign	2,136		—		2,136
	$	3,010	$	—	$	3,010



Year ended December 31, 2018	Current		Deferred			Total
	(in thousands)
Federal	$	—	$	(86	)	$	(86	)
State	744		(24		)	720
Foreign	78		1,325			1,403
	$	822	$	1,215		$	2,037



Year ended December 31, 2017	Current		Deferred			Total
	(in thousands)
Federal	$	—	$	(31	)	$	(31	)
State	540		8			548
Foreign	942		(973		)	(31		)
	$	1,482	$	(996	)	$	486

The actual provision for income taxes, net differs from the expected provision for income taxes computed at the U.S. Federal statutory tax rate of 21% due to the following:



	Year Ended December 31,
	2019			2018			2017
	(in thousands)
Provision for income taxes at the federal statutory rate	$	(206,131	)	$	(105,429	)	$	(85,445	)

State income tax expense, net of federal benefit	(40,136		)	(22,584		)	(11,432		)
Foreign tax rate differential	24,346			14,976			23,179
Non-deductible equity-based compensation expense	6,604			3,267			1,080
Windfall benefits from equity-based compensation	(28,915		)	(29,003		)	(24,168		)
Change in valuation allowance	236,863			119,370			24,209
Change in tax rate	(2,293		)	197			71,919
Limitation on officer's compensation	6,509			5,283			—
Debt integration termination	—			9,236			—
Other	6,163			6,724			1,144
Provision for income taxes, net	$	3,010		$	2,037		$	486

We recorded a provision for income taxes, net of $3.0 million, representing an effective tax rate of almost zero. The effective tax rate differs from the U.S. Federal statutory rate of 21% primarily as a result of the valuation allowance maintained against our worldwide net deferred tax asset.

The components of loss before income taxes determined by tax jurisdiction, are as follows:



	Year Ended December 31,
	2019			2018			2017
	(in thousands)
U.S.	$	(699,347	)	$	(327,356	)	$	(143,800	)
Foreign	(282,227		)	(174,687		)	(100,328		)
Total	$	(981,574	)	$	(502,043	)	$	(244,128	)

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities for the periods presented are as follows:



	December 31,
	2019			2018
	(in thousands)
Deferred tax assets:
Accounts receivable	$	5,909		$	2,400
Inventories	871			495
Net operating loss carry-forwards	470,199			262,481
Equity-based compensation expense	14,929			9,733
Intangibles	10,675			12,526
Accrued payroll	21,395			13,900
Accrued expenses and reserves	14,539			12,339
Charitable contributions	872			657
Leases	239,259			90,868
Gross deferred tax assets	778,648			405,399
Less: Valuation allowance	(412,898		)	(247,454		)
Net deferred tax assets	$	365,750		$	157,945
Deferred tax liabilities:
Prepaid expenses	$	(5,930	)	$	(3,030	)
Capitalized technology	(27,354		)	(15,427		)
Property and equipment	(14,191		)	(73,189		)
Operating lease right-of-use asset	(197,680		)	—
Goodwill	(40		)	(133		)
Convertible debt	(120,447		)	(66,166		)
Other	(108		)	—
Total deferred tax liabilities	(365,750		)	(157,945		)
Net deferred tax assets (liabilities)	—			—
Non-current net deferred tax assets (liabilities)	$	—		$	—

The valuation allowance increased by $165.4 million during 2019. The increase in the valuation allowance is primarily the result of establishing a valuation allowance primarily against the current year operating losses of our U.S. and Irish entities, partially offset by a decrease in valuation allowance through equity as a result of the deferred tax liability recorded related to the Company’s convertible debt issuance.

In determining the need for a valuation allowance, the Company has given consideration to the cumulative book income and loss positions of each of its entities as well as its worldwide cumulative loss position. The Company has assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to carry-back net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies and available sources of future taxable income. At December 31, 2019, we maintain a full valuation allowance against our worldwide net deferred tax assets.

As of December 31, 2019, the Company had federal net operating loss carryforwards available to offset future federal taxable income of $1.4 billion.

In addition, the Company had state net operating loss carryforwards available in the amount of $1.3 billion which are available to offset future state taxable income.

Of the federal net operating loss carryforwards, $427.4 million begin to expire in the year ending December 31, 2034. The remaining $1.0 billion of federal net operating loss carryforwards do not expire. The state net operating loss carryforwards begin to expire in the year ending December 31, 2022.

The Company's ability to utilize these federal and state net operating loss carry-forwards may be limited in the future if the Company experiences an ownership change pursuant to Internal Revenue Code Section 382. An ownership change occurs when the ownership percentages of 5% or greater stockholders change by more than 50% over a three-year period.

The Company also had foreign net operating loss carry-forwards available to offset future foreign income of $686.9 million. The Canadian net operating loss of $11.8 million will begin to expire in the year ending December 31, 2038. The remaining foreign net operating loss carryforwards do not expire.

As of December 31, 2019, the Company has not provided for U.S. deferred income taxes on undistributed earnings of its foreign subsidiaries of approximately $7.3 million since these earnings are deemed to be indefinitely reinvested. Upon distribution of those earnings in the form of dividends or otherwise, the Company could be subject to income taxes as well as withholding taxes. The amount of taxes attributable to the undistributed earnings is immaterial.

The Company establishes reserves for uncertain tax positions based on management's assessment of exposures associated with tax deductions, permanent tax differences and tax credits. The tax reserves are analyzed periodically and adjustments are made as events occur to warrant adjustment to the reserve. The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes, net. Reserves for uncertain tax positions as of December 31, 2019 and 2018 are not material and would not impact the effective tax rate if recognized as a result of the valuation allowance maintained against our net deferred tax assets.

The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. Related to the unrecognized tax benefits noted above, the Company did not accrue any penalties and interest during 2019, 2018, and 2017, respectively.

The Company's tax jurisdictions include the U.S., the UK, Germany, Ireland, Canada, Hong Kong and the British Virgin Islands. The statute of limitations with respect to the Company's U.S. federal income taxes has expired for years prior to 2016. The relevant state U.S. statutes vary and years prior to 2015 are generally closed. The statute of limitations with respect to the Company's foreign income taxes varies, but has expired for years prior to 2015. However, preceding years remain open to examination by U.S. federal and state and foreign taxing authorities to the extent of future utilization of net operating losses generated in each preceding year.