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Income taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
Income before provision for income taxes consisted of the following:
For the years ended December 31,
202120202019
(in thousands)
United States$(11,530)$(18,084)$13,486 
International9,078 2,872 1,963 
Total income/(loss) before provision for income taxes$(2,452)$(15,212)$15,449 
The federal and state income tax provision/(benefit) is summarized as follows:
For the years ended December 31,
202120202019
(in thousands)
Current
Federal$71 $167 $3,799 
State80 97 599 
International2,164 1,199 669 
Total current tax expense$2,315 $1,463 $5,067 
Deferred
Federal$2,752 $(3,042)$(375)
State(59)(811)(50)
International240 (222)— 
Total deferred tax expense/(benefit)$2,933 $(4,075)$(425)
Total tax expense/(benefit)$5,248 $(2,613)$4,642 
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company’s deferred taxes as of December 31, 2021 and 2020 are as follows (in thousands):
As of December 31,
20212020
(in thousands)
Deferred tax assets
Accrued compensation$818 $545 
Allowance for bad debt74 105 
State tax accrual13 13 
Stock-based compensation1,328 2,595 
Net operating loss755 2,364 
Credits195 71 
Total deferred tax assets$3,183 $5,693 
Deferred tax liabilities
Fixed asset basis$(153)$(84)
Intangible assets$(4,599)$(2,093)
Other foreign DTLs(24)— 
Total deferred tax liabilities(4,776)(2,177)
Net deferred taxes$(1,593)$3,516 
The Company assessed its ability to realize the benefits of its domestic deferred tax assets (“DTA”) by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) estimates of future taxable income, and (4) the length of net operating loss (“NOL”) carryforward periods. The Company determined it is in a three-year cumulative taxable income position as of December 31, 2021 and expects to continue to be in a taxable income position in the long-term foreseeable future.
After an evaluation of all available qualitative and quantitative evidence, both positive and negative in nature, the Company concluded it is more likely than not that sufficient future taxable income will be generated to realize the benefits of its DTAs prior to expiration. As a result, the Company determined that no valuation allowance was needed as of December 31, 2021.
Net operating losses and tax credit carryforwards as of December 31, 2021 are as follows:
AmountExpiration years
(in thousands)
Net operating losses, federal (Pre January 1, 2018)$259 2023
Net operating losses, state$10,903 
2032 – 2040
Tax credits, federal$186 
2040 - 2041
Tax credits, state$75 Does not expire
The effective tax rate of the Company differs from the federal statutory rate as follows:
For the years ended December 31,
202120202019
Statutory rate21.00 %21.00 %21.00 %
State tax(0.37)%3.86 %2.53 %
Permanent items(10.77)%(2.81)%3.17 %
Stock-based compensation deductions114.37 %16.80 %1.19 %
R&D credits3.80 %0.10 %(0.70)%
Foreign rate differential(4.86)%(2.62)%2.86 %
GILTI(75.67)%(4.78)%— 
Foreign intangible amortization(15.74)%— — 
162M limitation(245.79)%(14.37)%— 
Total(214.03)%17.18 %30.05 %
As of December 31, 2021, the Company has approximately $0.8 million of unrecognized tax benefits. Approximately all of the unrecognized tax benefits, if recognized, would affect the effective tax rate. A reconciliation of beginning to ending amounts of unrecognized tax benefits is as follows:
For the years ended December 31,
202120202019
(in thousands)
Unrecognized tax benefit as of January 1$654 $357 $75 
Changes related to prior year tax positions(50)1 123 
Changes related to current year tax positions176 296 159 
Unrecognized tax benefit as of December 31$780 $654 $357 
Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business. The Company does not anticipate a material change to its unrecognized tax benefits over the next twelve months.
The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. There was no interest or penalties accrued as of December 31, 2021 and 2020.
The Company is subject to income taxes in U.S. federal and various state, local and foreign jurisdictions. For Federal and states, tax years subsequent to 2017 remain open to examination due to the carryover of unused net operating losses or tax credits. With respect to foreign jurisdictions, tax years 2014 and after remain open.
On March 27, 2020, the U.S. President signed into law the CARES Act, an economic stimulus package in response to the COVID-19 global pandemic. The CARES Act contains several corporate income tax provisions, including making remaining alternative minimum tax credits immediately refundable; providing a 5-year carryback of NOLs generated in tax years 2018, 2019, and 2020, and removing the 80% taxable income limitation on utilization of those NOLs if carried back to prior tax years or utilized in tax years beginning before 2021; and temporarily liberalizing the interest deductibility rules under Section 163(j) of the Tax Cuts and Jobs Act, by raising the adjusted taxable income limitation from 30% to 50% for tax years 2019 and 2020 and giving taxpayers the election of using 2019 adjusted taxable income for purposes of computing 2020 interest deductibility.
The provisions of the CARES Act did not have a material effect on the realizability of deferred income tax assets or tax expense.
The Company's provision for income taxes does not include provisions for foreign withholding taxes associated with the repatriation of undistributed earnings of certain foreign subsidiaries that we intend to reinvest indefinitely in our foreign subsidiaries.
On December 27, 2020, the U.S. president has signed into law the “Consolidated Appropriations Act, 2021” which includes further COVID-19 economic relief and extension of certain expiring tax provisions. The relief package was not materially impactful on the Company’s tax positions.
California Assembly Bill 85 (AB 85) was signed into law by Governor Gavin Newsom on June 29, 2020. The legislation suspends the California Net Operating Loss deductions for 2020, 2021, and 2022 for certain taxpayers and imposes a limitation of California Tax Credits utilization for 2020, 2021, and 2022. The legislation disallows the use of California Net Operating Loss deductions if the taxpayer recognizes business income and its income subject to tax is greater than $1.0 million. Additionally, business credits will only offset a maximum of $5.0 million of California tax liability. The Company has estimated its 2021 California state taxable income to be below $1.0 million. As such, this credit limitation does not impact the Company in 2021.
The American Rescue Plan Act of 2021 was signed into law on March 11, 2021, expanding on the definition of covered employees as defined under IRC §162(m). The provisions under the expanded definition of covered employees have been considered and were determined not to be materially impactful on the Company’s tax positions.