Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 11. Income Taxes

Provision for income taxes consists of U.S. federal and state income taxes. A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences, operating losses and tax credit carryforwards. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The following table summarizes income (loss) before income taxes, equity loss in investee and gain (loss) on equity-method investments:

	Year Ended December 31,
	2022			2021			2020
	(in thousands)
U.S. income before income taxes, equity loss in investee and gain (loss) on equity-method investments	$	189,406		$	681,403		$	291,739
Foreign loss before income taxes, equity loss in investee and gain (loss) on equity-method investments		(5,381	)		(4,103	)		(55	)
Income before income taxes, equity loss in investee and gain (loss) on equity-method investments	$	184,025		$	677,300		$	291,684

Income tax expense consisted of the following:

	Year Ended December 31,
	2022			2021			2020
	(in thousands)
Current:
Federal	$	31,140		$	131,907		$	53,794
State		19,242			51,076			20,513
Total Current		50,382			182,983			74,307
Deferred:
Federal		(3,763	)		(7,471	)		(248	)
State		(4,517	)		(717	)		(14	)
Foreign		224			669			—
Change in valuation allowance		(224	)		(669	)		(1,513	)
Total Deferred		(8,280	)		(8,188	)		(1,775	)
Total income tax expense	$	42,102		$	174,795		$	72,532

Reconciliation of the difference between the federal statutory income tax rate and the effective income tax rate is as follows:

	Year Ended December 31,
	2022			2021			2020
Tax provision at federal statutory rate		21.00	%		21.00	%		21.00	%
State taxes		7.01	%		5.99	%		5.68	%
Uncertain tax positions		0.92	%		0.05	%		0.13	%
Stock based compensation		-1.12	%		-1.96	%		-0.92	%
Return to provision		-3.92	%		-0.17	%		-0.11	%
Other permanent differences		1.33	%		1.09	%		0.02	%
Research & development credit		-2.98	%		-0.33	%		-0.40	%
Other		0.34	%		0.19	%		-0.01	%
Change in valuation allowance		0.12	%		-0.10	%		-0.52	%
Effective tax rate		22.70	%		25.76	%		24.87	%

The following table summarizes the elements of the deferred tax assets (liabilities). Net deferred tax assets are included in other long-term assets in the Consolidated Balance Sheets.

	As of December 31,
	2022			2021
	(in thousands)
Deferred tax assets
Accrued vacation and other accrued expenses	$	1,488		$	1,486
Provision for credit losses		10,255			2,755
Net operating losses		16,345			199
Stock based compensation		2,550			1,739
State income taxes		4,892			10,991
Excess tax basis in FF Gene Biotech net assets		2,032			—
Foreign		—			1,808
Lease liability		4,086			1,643
Unrealized gain/loss on available-for-sale debt securities		7,664			437
Section 174 research & experimental expenditures		6,573			—
Equity loss in investment		503			700
Other		199			162
Gross deferred tax assets		56,587			21,920
Less: Valuation allowance		(2,832	)		(2,609	)
Net deferred tax assets		53,755			19,311
Deferred tax liabilities
Intangible assets		39,199			8,083
Depreciation		5,500			7,371
Right of use asset		4,056			1,640
Other		1,496			1,458
Total deferred tax liabilities		50,251			18,552
Net deferred tax assets	$	3,504		$	759

As of December 31, 2022, the Company has $58.8 million estimated federal net operating loss, or NOL, carryforwards and estimated state NOL carryforwards of $66.0 million. The Company’s state NOLs are scheduled to begin expiring in 2037. The Company also has foreign NOL carryforwards of $13.8 million which are scheduled to expire from 2023 through 2027.

ASC 740-10-30-5 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred income tax assets will not be realized. The Company has evaluated the realizability of its deferred tax assets and has concluded that it is more likely than not that the Company may not realize the benefit of certain deferred tax assets. These deferred tax assets consist primarily of equity losses in joint ventures and foreign net operating loss carryforwards; accordingly, a valuation allowance of $2.8 million and $2.6 million has been recorded on these deferred tax assets as of December 31, 2022 and 2021. The increase in the valuation allowance of $224,000 for the years ended December 31, 2022 was primarily due to an increase in foreign deferred tax assets that are more likely than not to expire unrealized.

During 2020, the Company recorded a deferred tax asset related to the impairment of its investment in BostonMolecules, Inc. When realized, the asset will generate a capital loss which may only be used to offset capital gain income; therefore, the Company has recorded a full valuation allowance against this asset.

Uncertain Tax Positions

The Company is subject to income taxation by the United States government and certain states in which the Company's activities give rise to an income tax filing requirement. The Company does not have any significant income tax filing requirements in any foreign jurisdiction. As of December 31, 2022, there were no pending tax audits in any jurisdiction. The tax returns are subject to statutes of limitations that vary by jurisdiction. At December 31, 2022, the Company remains subject to income tax examinations in the U.S. and various states for tax years 2019 through 2022; certain other states remain subject to examination for tax years 2018 through 2022. However, due to the Company’s NOL carryforwards in various jurisdictions, tax authorities have the ability to adjust carryforwards related to closed years until the statute expires on the year(s) in which the NOL carryforwards are utilized.

A reconciliation of the Company’s gross unrecognized tax benefits is as follows:

	Year Ended December 31,
	2022		2021		2020
	(in thousands)
Balance at beginning of year	$	710	$	377	$	—
Increases to prior year positions		2,843		—		141
Increases for current year positions		6,189		333		236
Balance at end of year	$	9,742	$	710	$	377

As of December 31, 2022, the Company has $9.7 million of gross unrecognized tax benefits, of which, $2.3 million of unrecognized tax benefits would affect the effective tax rate if recognized. The Company has accrued $94,000 and $15,000 for interest at December 31, 2022 and 2021, respectively, and has recognized interest expense of $94,000 and $15,000 for the years ended December 31, 2022 and 2021, respectively. Although it is possible that the amount of unrecognized benefits with respect to our uncertain tax positions will increase or decrease in the next twelve months, the Company does not expect material changes.

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