Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 9. INCOME TAXES

The Company's provision for income taxes consisted of the following.

	Years Ended December 31,
Income Tax Provision	2022			2021			2020
Federal	$	-		$	-		$	-
Foreign		99			133			128
State and local		233			-			-
Current provision		332			133			128
Federal		(4,390	)		-			-
Foreign		(3	)		(18	)		21
State and local		(1,327	)		-			-
Deferred (benefit) provision		(5,720	)		(18	)		21
Provision for income taxes	$	(5,388	)	$	115		$	149

The following table presents a reconciliation of the Company’s effective tax rates for the periods indicated.

	Years Ended December 31,
Rate Reconciliation	2022			2021			2020
U.S. statutory rate		21.0	%		21.0	%		21.0	%
State rate net of fed benefit		3.4	%		8.1	%		5.0	%
Change in valuation allowance		(18.2	%)		(33.8	%)		(25.0	%)
SPAC transaction costs		0.0	%		3.7	%		0.0	%
Stock compensation		2.0	%		0.0	%		0.0	%
Permanent adjustments		(0.2	%)		(0.6	%)		(1.0	%)
Deferred Adjustments		(2.8	%)		0.0	%		0.0	%
Other		0.1	%		1.4	%		0.0	%
Effective Tax Rate		5.3	%		(0.2	%)		0.0	%

Tax effects of temporary differences can give rise to significant portions of deferred tax assets and deferred tax liabilities. The components of deferred income tax assets and liabilities are as follows.

Tax Effects of Temporary Differences	As of December 31,
	2022			2021
Attributes
Deferred tax asset
Federal NOLs	$	38,326		$	27,815
State NOLs		9,782			8,206
Deferred revenue		14,021			9,408
Capitalized R&D		7,973			-
Other deferred tax assets		9,187			5,669
Total deferred tax assets		79,289			51,098
Less: Valuation allowance		(61,683	)		(43,175	)
Total net deferred tax asset	$	17,606		$	7,923
IRC 481(a) Adjustment		(324	)		(209	)
Deferred costs of revenue		(8,960	)		(6,576	)
Intangibles		(7,408	)		-
Other deferred tax liabilities		(1,142	)		(1,140	)
Total deferred tax liabilities		(17,834	)		(7,925	)
Net deferred tax liability	$	(228	)	$	(2	)

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. As a result of historical cumulative losses, Management determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net federal and state deferred taxes in future periods. Therefore, a valuation allowance equal to the amount of the net federal and state deferred tax assets was provided at December 31, 2022 and 2021. The net valuation allowance increased by $18,508 from $43,175 to $61,683 in 2022.

As of December 31, 2022, the Company has gross NOLs of $205.8 million and $188.3 million for federal and state income tax return purposes, respectively. Federal NOLs can be carried forward indefinitely, while State NOLs will expire between 2038 and 2042. The Company also has $0.1 million of R&D credits available that expire in 2039.

The Tax Reform Act of 1986 (the "Act") provides for a limitation of the annual use of the net operating loss carryforwards following certain ownership changes (as defined by the Act and codified under IRC 382) that could limit the company's ability to utilize these carryforwards. Should the limitation apply, the related net operating loss and Section 163(j) deferred tax assets and the valuation allowance would be reduced by the same amount. The Company has not performed a Section 382 analysis.

The Company recorded net deferred tax liabilities during the year ended December 31, 2022, due to the acquisition of SightPlan. Those net deferred tax liabilities provide a source of taxable income to offset future tax deductions from deferred tax assets, and as a result, management reduced the valuation allowance by $5,902 during the year ended December 31, 2022 (Note 13).

The income tax benefit on the Consolidated Statement of Operations and Comprehensive Loss is primarily related to the valuation allowance release due to deferred tax liabilities from the SightPlan acquisition. We have established a full valuation allowance for net deferred U.S. federal and state tax assets, including net operating loss carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized in future periods if we report taxable income. We believe that we have established an adequate allowance for our uncertain tax positions, although we can provide no assurance that the final outcome of these matters will not be materially different. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made.

On August 16, 2022, the Inflation Reduction Act ("IRA") (H.R. 5376) was signed into law in the United States. The IRA implements a 15% minimum tax on financial statement income of certain large corporations and a 1% excise tax on stock repurchases, among other things. While the Company continues to evaluate the IRA, it does not believe it will have a material effect on its audited financial statements, including on its effective tax rate or on its liquidity.

The Company files income tax returns in the U.S. federal and various state jurisdictions, as well as in Croatia and India. The Company is subject to U.S. federal and state income tax examinations by authorities for all tax years beginning in 2018, due to the accumulated net operating losses that are carried forward. Similarly, SightPlan is subject to U.S. federal and state income tax examination by authorities for all tax years beginning in 2012. The Company is subject to Croatian income tax examinations for all tax years beginning in 2017. The Company is subject to Indian income tax examinations for all tax years beginning in 2019.

The Company evaluates uncertain tax positions which requires significant judgments and estimates regarding the recoverability of deferred tax assets, the likelihood of the outcome of examinations of tax positions that may or may not be currently under review and potential scenarios involving settlements of such matters. A summary of changes in the Company's gross unrecognized tax benefits for the years ended December 31, 2022 and 2021 is as follows (in thousands):

	As of December 31,
	2022		2021
Unrecognized tax benefits - January 1	$	8,757	$	-
Gross increases - tax positions in prior period		-		6,961
Gross decreases - tax positions in prior period		-		-
Gross increases - tax positions in current period		14,495		1,796
Settlement		-		-
Lapse of statute of limitations		-		-
Unrecognized tax benefits - December 31	$	23,252	$	8,757

The total balance of unrecognized tax benefits as of December 31, 2022 would not impact the effective tax rate if recognized, as the Company is in a full valuation allowance and the unrecognized tax benefit is a deferred tax asset.

The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefit as a component of income tax expense. The Company has not accrued penalties and interest as of December 31, 2022. The Company expects the unrecognized tax benefits to reverse in full within the next 12 months.