Income Taxes

12 Months Ended

Dec. 31, 2021

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,
	2021			2020			2019
	(in thousands)
U.S. income before income taxes, equity loss in investee and gain (loss) on equity-method investments	$	681,403		$	291,739		$	679
Foreign loss before income taxes, equity loss in investee and gain (loss) on equity-method investments		(4,103	)		(55	)		(270	)
Income before income taxes, equity loss in investee and gain (loss) on equity-method investments	$	677,300		$	291,684		$	409

Income tax expense consisted of the following:

	Year Ended December 31,
	2021			2020			2019
	(in thousands)
Current:
Federal	$	131,907		$	53,794		$	5
State		51,076			20,513			38
Total Current		182,983			74,307			43
Deferred:
Federal		(7,471	)		(248	)		(249	)
State		(717	)		(14	)		(280	)
Foreign		669			—			—
Change in valuation allowance		(669	)		(1,513	)		529
Total Deferred		(8,188	)		(1,775	)		—
Total income tax expense	$	174,795		$	72,532		$	43

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

	Year Ended December 31,
	2021			2020			2019
Tax provision at federal statutory rate		21.00	%		21.00	%		21.00	%
State taxes		5.99	%		5.68	%		-46.76	%
Foreign tax rate differential		0.00	%		0.00	%		13.83	%
Uncertain Tax Positions		0.05	%		0.13	%		0.00	%
Stock based compensation		-1.96	%		-0.92	%		-53.53	%
Return to provision		-0.17	%		-0.11	%		-57.11	%
Other permanent differences		1.09	%		0.02	%		3.87	%
Other		-0.14	%		-0.41	%		0.01	%
Change in valuation allowance		-0.10	%		-0.52	%		129.22	%
Effective tax rate		25.76	%		24.87	%		10.53	%

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.

	Year Ended December 31,
	2021			2020			2019
	(in thousands)
Deferred tax assets
Accrued vacation and other accrued expenses	$	1,486		$	166		$	97
Provision for credit losses		2,755			513			180
Net operating losses		199			206			445
Stock based compensation		1,739			1,424			609
State income taxes		10,991			4,306			8
Foreign		1,808			1,220			545
Credits		—			—			680
Lease liability		1,643			226			643
Equity loss in investment		700			700			—
Other		599			89			—
Gross deferred tax assets		21,920			8,850			3,207
Less: Valuation allowance		(2,609	)		(2,021	)		(2,125	)
Net deferred tax assets		19,311			6,829			1,082
Deferred tax liabilities
Intangible assets		8,083			—			—
Depreciation		7,371			4,830			419
Right of use asset		1,640			224			633
Other		1,458			147			30
Total deferred tax liabilities		18,552			5,201			1,082
Net deferred tax assets	$	759		$	1,628		$	—

As of December 31, 2021, the Company has no estimated federal net operating loss, or NOL, carryforwards and estimated state NOL carryforwards of $1.8 million. The Company’s state NOLs are scheduled to begin expiring in 2037. The Company also has foreign NOL carryforwards of $13.7 million which are scheduled to expire from 2022 through 2026.

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 $2.6 million and $2.0 million has been recorded on these deferred tax assets as of December 31, 2021 and 2020. The increase in the valuation allowance of $588,000 for the years ended December 31, 2021 was primarily due to an increase in foreign deferred tax assets that are more likely than not to expire unrealized.

During 2020 and 2019 the Company recorded a deferred tax asset related to its equity-method investment in FF Gene Biotech.  When realized, the excess tax basis would have generated a capital loss which only would have been available to offset capital gain income.  As a result, the Company recorded a full valuation allowance against this asset in 2020 and 2021. However, due to an incremental investment in FF Gene Biotech in 2021, the Company now includes the subsidiary in its consolidated balance sheet; it is no longer an equity-method investment.  Therefore, the previously recorded deferred tax asset was reversed as part of the related acquisition accounting. 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. The net deferred assets are included in other long-term assets in the accompanying Consolidated Balance Sheets.

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, 2021, 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, 2021, the Company remains subject to income tax examinations in the U.S. and various states for tax years 2018 through 2021; certain other states remain subject to examination for tax years 2017 through 2021. 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,
	2021		2020		2019
	(in thousands)
Balance at beginning of year	$	377	$	—	$	—
Increases to prior positions		—		141		—
Increases for current year positions		333		236		—
Balance at end of year	$	710	$	377	$	—

As of December 31, 2021, the Company has $710,000 of gross unrecognized tax benefits, related to research and experimental tax credits. The Company has $710,000 of unrecognized tax benefits as of December 31, 2021, which, if recognized, would affect the annual effective tax rate. The Company has accrued $15,000 and $0 for interest at December 31, 2021 or 2020, respectively, and has recognized interest expense of $15,000 and $0 for the years ended December 31, 2021 and 2020, 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.