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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of our income taxes are as follows:
Year Ended December 31,
(in thousands)202320222021
Current
Federal$16,588 $6,974 $(361)
State2,270 3,120 2,532 
Total current income tax expense18,858 10,094 2,171 
Deferred
Federal(41,856)(421)6,521 
State(23,706)(76)6,385 
Total deferred income tax (benefit) expense(65,562)(497)12,906 
Total income tax (benefit) expense$(46,704)$9,597 $15,077 
The following is a reconciliation of the U.S. federal statutory rate of 21.0% to our effective income tax rate:
Year Ended December 31,
(dollars in thousands)202320222021
Income taxes computed at federal statutory rate$(11,670)$(4,879)$(2,137)
State income taxes (1)
(16,934)2,465 8,385 
Stock-based compensation217 383 491 
Excess tax (benefits) related to stock-based compensation6,131 4,565 (43,797)
Research and development credits, net of reserves526 (6,401)(8,206)
Nondeductible officers' compensation10,641 12,295 21,905 
(Decrease) increase in valuation allowance(36,323)68 37,782 
Transaction costs1 39 438 
Basis difference on disposition— 659 — 
Nondeductible penalties2 318 16 
Other705 85 200 
Income tax (benefit) expense$(46,704)$9,597 $15,077 
Effective income tax rate84.0 %(41.3 %)(148.1 %)
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(1)Includes the state tax effects for (i) excess tax (benefits) related to stock-based compensation of $1.0 million, $0.8 million and ($6.4) million for 2023, 2022 and 2021, respectively, and (ii) a valuation allowance (decrease) increase of ($13.0) million, $4.4 million and $14.6 million for 2023 and 2022, and 2021 respectively.
Deferred taxes, net consist of the following:
December 31,
(in thousands)20232022
Deferred tax assets
Other assets$4,602 $2,703 
Operating lease liabilities13,279 14,402 
Stock-based compensation10,804 12,542 
Research and development credits, net of reserves11,918 14,382 
Tax credit carryforward827 769 
Charitable contribution carryforward4,510 6,810 
Goodwill7,491 10,705 
Capitalized research and development expenditures14,935 9,269 
Intangible assets4,971 — 
Accrued legal settlement3,160 — 
Net operating losses10,458 8,737 
Total deferred tax assets86,955 80,319 
Valuation allowance(7,818)(57,115)
Deferred tax assets, net of valuation allowance79,137 23,204 
Deferred tax liabilities
Other liabilities(404)(1,143)
Operating lease right-of-use assets, net(7,265)(8,815)
Property and equipment(3,064)(4,383)
Intangible assets— (9,157)
Insurance recovery receivable(3,136)— 
Total deferred tax liabilities(13,869)(23,498)
Total deferred tax assets (liabilities), net$65,268 $(294)
We recognized total excess tax benefits of ($7.1) million, ($5.4) million and $50.2 million associated with equity award exercises and vesting in income tax benefit (expense) for the years ended December 31, 2023, 2022 and 2021, respectively.
We consider all available positive and negative evidence in our assessment of the recoverability of our net deferred tax assets each reporting period. In 2021, we had cumulative three-year pre-tax losses adjusted for permanent book to tax adjustments principally from substantial excess tax benefits realized in 2021 and 2020 from the exercise of stock options granted prior to our IPO and thus recognized a full valuation allowance against our net deferred tax assets in excess of amortizable goodwill which we maintained through the end of 2022. During 2023, we determined that a valuation allowance against the majority of our net deferred tax assets was no longer required primarily due to sustained tax profitability (pre-tax earnings or loss adjusted by permanent book to tax differences), which was objective and verifiable evidence, and anticipated future earnings. As a result, we released $54.6 million of our valuation allowance and recognized it as an income tax benefit in the consolidated statement of operations for the year ended December 31, 2023.
As of December 31, 2023, our valuation allowance is attributable to certain standalone tax filings' net deferred tax assets which are not more likely than not to be realized in the future. Our judgment regarding the need for a valuation allowance may reasonably change in future reporting periods due to many factors, including changes in the level of tax profitability that we achieve, changes in tax laws or regulations and price fluctuations of our Class A common stock and its related future tax effects from our outstanding equity awards.
At December 31, 2023, we had U.S. federal net operating loss carryforwards ("NOLs") of $26.1 million available to reduce future federal income taxes. Approximately $5.6 million of these NOLs were generated before January 1, 2018 and will expire in varying amounts starting 2034. The remaining $20.5 million of these NOLs are carried over indefinitely but utilization is subject to an 80% taxable income limitation. At December 31, 2023, we also had state NOLs of $100.9 million available to reduce future state income taxes which will expire in varying amounts beginning 2024. The amount of state NOLs expiring in 2024 would not be material to the consolidated financial statements as a full valuation allowance has been established against certain standalone tax filings' net deferred tax assets due to uncertainty regarding their future realization.
As of December 31, 2023, we had California and other state research tax credits carryforwards of $21.6 million, of which $21.4 million generally may be carried forward indefinitely.
At December 31, 2023, tax years 2020 and forward were subject to examination by the Internal Revenue Service (“IRS”), and tax years 2019 and forward were subject to examination by the various state taxing jurisdictions in which we are subject to tax. At December 31, 2023, we were not subject to any federal or state income tax audits.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
(in thousands)
Gross unrecognized tax benefits at December 31, 2020$7,391 
Increases related to prior year tax positions999 
Increases related to current year tax positions6,911 
Lapse of statute of limitations(505)
Gross unrecognized tax benefits at December 31, 202114,796 
Increases related to prior year tax positions422 
Increases related to current year tax positions2,444 
Decreases related to prior year tax positions(1,160)
Lapse of statute of limitations(1,804)
Gross unrecognized tax benefits at December 31, 202214,698 
Increases related to prior year tax positions409 
Increases related to current year tax positions746 
Decreases related to prior year tax positions(1,080)
Lapse of statute of limitations(576)
Gross unrecognized tax benefits at December 31, 2023$14,197 
As of December 31, 2023, we had gross unrecognized tax benefits of approximately $14.2 million, $12.7 million of which, if recognized, would impact our effective tax rate. We estimate unrecognized tax benefits will decrease by $2.5 million in 2024 due to the expiration of statute of limitations.
At December 31, 2023 and 2022, accrued interest and penalties related to uncertain tax positions were not material.