Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The U.S. and foreign components of loss before income taxes were as follows (in millions):

	Year Ended December 31,
	2020		2021		2022
United States	$	(463)	$	(461)	$	(991)
Foreign	5		(2)		(408)
Loss before income taxes	$	(458)	$	(463)	$	(1,399)

The components of the provision for (benefit from) income taxes were as follows (in millions):

	Year Ended December 31,
	2020		2021		2022
Current
Federal	$	—	$	—	$	—
State	3		3		—
Foreign	—		1		4
Total current tax expenses	$	3	$	4	$	4
Deferred
Federal	(1)		1		—
State	—		1		1
Foreign	1		(1)		(36)
Total deferred tax expenses (benefit)	—		1		(35)
Total provision for (benefit from) income taxes	$	3	$	5	$	(31)

The Company's provision for income taxes primarily consisted of U.S. federal and state income tax, as well as income taxes related to non-U.S. operations. The benefit from income taxes was primarily driven by the losses generated in non-U.S. jurisdictions for which a tax benefit can be realized, and the tax effects of deductible stock-based compensation for certain foreign jurisdictions, offset by state income taxes.

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate was as follows:

	Year Ended December 31,
	2020		2021		2022
Federal tax at statutory rate	21	%	21	%	21	%
State tax, net of federal benefit	3		4		3
Change in valuation allowance	(21)		(225)		(18)
Stock-based compensation	(2)		155		(1)
Research and development credits	3		46		(2)
Non-deductible expenses	(3)		(1)		(1)
Non-deductible interest expenses	(2)		(1)		—
Worthless stock deduction	—		—		1
Other	—		—		(1)
Benefit from (provision for) income taxes	(1)	%	(1)	%	2	%

In general, it is the Company's practice and intention to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2022, the Company has not made a provision for U.S. or additional foreign withholding taxes on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are indefinitely reinvested. Generally, such amounts become subject to taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

The significant components of the Company’s deferred tax assets and liabilities were as follows (in millions):

	December 31,
	2021		2022
Deferred tax assets
Accruals and reserves	$	104	$	132
Stock-based compensation	36		74
Tax credits carryforward	237		209
Operating lease liabilities	101		115
Capitalized research and development	—		619
Net operating loss carryforward	1,050		660
Other	—		88
Total gross deferred tax assets	1,528		1,897
Less: Valuation allowance	(1,398)		(1,655)
Total deferred tax assets net of valuation allowance	130		242
Deferred tax liabilities
Property and equipment and intangible assets	(36)		(134)
ROU assets	(83)		(94)
Deferred contract costs	(15)		(17)
Total gross deferred tax liabilities	(134)		(245)
Net deferred tax liabilities	$	(4)	$	(3)

During 2022, the Company effectuated certain tax-planning actions which reduced the amount of net operating losses generated in 2021 by $2.4 billion with a corresponding increase to other deferred tax assets which will reverse in future periods. These tax-planning actions did not result in additional income tax liability for 2021.

The Company accounts for deferred taxes under ASC 740, Income Taxes, which requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the ASC 740 more-likely-than-not realization threshold criterion. This assessment considers matters such as future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The evaluation of the recoverability of the deferred tax assets requires that the Company weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. Due to the lack of earnings history, the Company's deferred tax assets have been fully offset by a valuation allowance, with the exception of certain foreign jurisdictions. Overall, the valuation allowance increased by $97 million, $1.0 billion and $257 million in the years ended December 31, 2020, 2021 and 2022, respectively.

As of December 31, 2022, the Company had accumulated federal and state net operating loss carryforwards of $2.1 billion and $1.6 billion, respectively. Of the $2.1 billion of federal net operating losses, $2.0 billion is carried forward indefinitely. Of the $1.6 billion of state net operating losses, $342 million is carried forward indefinitely. The remaining federal and state net operating loss carryforwards will begin to expire in 2036 and 2024, respectively. As of December 31, 2022, the Company had foreign net operating loss carryforwards of $692 million that begin to expire in 2025.

The Company also had $181 million and $102 million of federal and state research and development tax credit carryforwards, respectively, as of December 31, 2022. The federal research and development tax credits expire in varying amounts starting in 2033. The California research credits do not expire and may be carried forward indefinitely.

The Company’s ability to utilize the net operating loss and tax credit carryforwards in the future may be limited in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code of 1986, as amended, and similar state tax law. Based on the most recent analysis, the Company does not anticipate a current limitation on the tax attributes.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is included in the table below (in millions):

	Year Ended December 31,
	2020		2021		2022
Unrecognized tax benefits at beginning of year	$	7	$	7	$	69
Increases related to current year tax positions	3		62		19
Decreases related to prior year tax positions	(3)		—		(19)
Unrecognized tax benefits at end of year	$	7	$	69	$	69

The Company had $69 million of gross unrecognized tax benefits as of December 31, 2022, the majority of which would not affect its effective tax rate if recognized due to the Company's valuation allowance. The majority of gross unrecognized tax benefits relate to income tax positions which, if recognized, would be in the form of additional deferred tax assets that would be offset by a valuation allowance. The Company does not anticipate that the amount of unrecognized tax benefits relating to tax positions existing at December 31, 2022 will significantly increase or decrease within the next 12 months.

The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits within provision for income taxes, which were immaterial for the periods presented.

The Company files U.S. federal and state income tax returns in the United States federal jurisdiction as well as foreign jurisdictions. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the federal, state, or foreign tax authorities to the extent utilized in a future period. The material jurisdictions in which the Company is subject to potential examination include the United States and Finland. The Company’s 2016 and subsequent tax years remain open to examination by the U.S. Internal Revenue Service, 2017 and subsequent tax years remain open to examination in Finland.