INCOME TAXES

12 Months Ended

Dec. 31, 2019

The provision for income taxes consisted of the following (in thousands):



	Year Ended December 31,
	2019			2018			2017
Current:
Federal⁽¹⁾	$	(468	)	$	(2,113	)	$	2,272
State	1,847			215			2,162
Total current provision (benefit)	1,379			(1,898		)	4,434
Deferred:
Federal	107			(8,009		)	(8,333		)
State	(3,383		)	(4,486		)	1,668
Total deferred benefit	(3,276		)	(12,495		)	(6,665		)
Total benefit from income taxes	$	(1,897	)	$	(14,393	)	$	(2,231	)

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(1)	As of December 31, 2018, the income tax benefit reflects the recognition of a $2.1 million income tax receivable from amended federal income tax returns to carry back the net operating loss and tax credits generated in 2017 and refundable alternative minimum tax credit.

The provision for income taxes reconciles to the amount computed by applying the federal statutory rate, 21.0%, to income before income taxes as follows (in thousands, except percentages):



	Year Ended December 31,
	2019					2018					2017
Expected federal income tax	21.0	%	$	1,234		21.0	%	$	(11,247	)	35.0	%	$	11,406
State income taxes⁽¹⁾	(26.1	)%	(1,536		)	8.0	%	(4,270		)	8.0	%	2,606
Permanent items	(6.5	)%	(384		)	1.1	%	(614		)	0.3	%	88
Research and development tax credits	(17.1	)%	(1,003		)	1.6	%	(850		)	(2.6	)%	(850		)
Excess tax benefits and stock-based compensation	(13.9	)%	(815		)	(1.0	)%	559			(0.7	)%	(243		)
Acquisition-related tax adjustments	3.2	%	189			(2.1	)%	1,144			(1.4	)%	(445		)
Enactment of the Tax Act	—	%	—			—	%	—			(47.4	)%	(15,461		)
Other	7.1	%	418			(1.7	)%	885			2.0	%	668
Income tax benefit	(32.3	)%	$	(1,897	)	26.9	%	$	(14,393	)	(6.8	)%	$	(2,231	)

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(1)	As of December 31, 2019, the state income taxes reflect the recognition of a $2.0 million tax benefit from change in state tax apportionment, change in state tax laws, and tax rates applied against the Company’s deferred tax balance.

In December 2017, the Tax Act was enacted which included a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The Tax Act also provided for the acceleration of depreciation for certain assets placed into service after September 27, 2017 and prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21%

under the Tax Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a $15.5 million tax benefit in the Company’s consolidated statement of operations for the year ended December 31, 2017. The Company completed its accounting for the income tax effects of the Tax Act in 2017.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):



	December 31,
	2019		2018
Components of deferred tax assets and liabilities
Deferred tax assets:
Operating lease liabilities	$	18,524	$	—
Unrealized gains and losses in other comprehensive income	12,568		3,200
Interest expense carryforwards	9,079		11,278
Net operating loss carryforwards	6,975		17,258
Tax credit carryforwards	4,156		3,114
Stock-based compensation	4,078		3,553
Accrued expenses and reserves	2,196		4,571
Other	1,297		2,634
Total deferred tax assets	58,873		45,608
Deferred tax liabilities:
Intangibles	113,978		127,272
Property, equipment and capitalized software	22,606		26,612
Operating lease right-of-use assets	15,300		—
Prepaids and other	4,453		2,092
Total deferred tax liabilities	156,337		155,976
Net deferred tax liabilities before valuation allowance	97,464		110,368
Valuation allowance	229		301
Net deferred tax liabilities	$	97,693	$	110,669

As of December 31, 2019, the Company has U.S. federal and state net operating loss carryforwards of approximately $2.9 million and $5.1 million, respectively. The majority of the U.S. federal net operating loss carryforwards will not expire and the majority of the state net operating losses will expire by 2038. As of December 31, 2019, the Company has interest expense carryforwards of approximately $9.1 million that can be carried forward indefinitely. As of December 31, 2019, the Company has U.S. federal and state tax credit carryforwards of approximately $4.0 million and $0.6 million, respectively, gross of any uncertain tax position considerations. The tax credit carryforwards will expire between 2020 and 2039. Change of control provisions as defined in Section 382 of the Internal Revenue Code have been analyzed and are not expected to materially limit the Company’s use of the interest expense, net operating loss, or tax credit carryforwards.

Uncertain Tax Positions— The interest and penalties related to uncertain tax positions are classified as a component of income tax expense. The following table presents the changes in uncertain tax position (in thousands):



	2019			2018			2017
January 1	$	1,158		$	—		$	80
Gross increases in tax positions in current period	2			—			—
Gross increase in tax positions in prior period	37			32			291
Gross decrease in tax positions in prior period	(1		)	(1		)	(160		)
Gross increase in tax positions from acquisitions	16			1,162			—
Settlement	—			—			(211		)
Lapse of statute of limitations	(51		)	(35		)	—
Uncertain tax position at December 31	$	1,161		$	1,158		$	—

If the uncertain tax positions were to be resolved favorably, total uncertain tax position in an amount of approximately $1.2 million would reduce income tax expense and the Company’s effective tax rate in the future. While it is reasonably possible that the amount of the unrecognized tax benefits could increase or decrease during the next twelve months, we believe it is unlikely that the change would be a material amount.

While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could differ from the Company’s accrued position. Accordingly, additional provisions on federal, state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.

The Company is subject to taxation by the United States of America, various United States of America jurisdictions, and Puerto Rico. The number of years with open tax audits varies depending on the tax jurisdiction.