Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 16. Income Taxes

Teknova’s provision for (benefit from) income taxes consist of the following for the year ended December 31, 2021 and 2020 (in thousands):

	For the Year Ended December 31,
	2021			2020
Current:
Federal	$	—		$	(1,196	)
State		3			262
Total current		3			(934	)
Deferred:
Federal		(2,604	)		1,954
State		(233	)		136
Total deferred		(2,837	)		2,090
Income tax expense (benefit)	$	(2,834	)	$	1,156

A reconciliation of the statutory tax rate to the Company’s effective tax rate is as follows:

	For the Year Ended December 31,
	2021			2020
Statutory federal income tax rate %		21.0	%		21.0	%
State income tax rate		2.1			7.0
Permanent items		—			(0.2	)
Stock compensation		(1.5	)		1.7
CARES Act		—			(4.7	)
Research and development credit		0.6			—
Other		0.2			(0.3	)
Effective tax rate %		22.4	%		24.5	%

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due, plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either deductible or taxable when the assets and liabilities are recovered or settled. The Company’s component of net deferred tax liability and assets consist of the following as of December 31, 2021 and 2020 (in thousands):

	As of December 31,
	2021			2020
Deferred tax asset
Net operating loss carryforwards	$	3,672		$	692
Accrued compensation		401			214
Stock compensation		262			—
Tax credit carryforwards		150			53
Accruals and other		241			88
Total deferred tax asset		4,726			1,047
Deferred tax liability
Fixed assets		(2,429	)		(1,746	)
Intangibles		(4,973	)		(5,291	)
Total deferred tax liability		(7,402	)		(7,037	)
Valuation allowance		(477	)		—
Net deferred tax liability	$	(3,153	)	$	(5,990	)

As of the end of December 31, 2021, Teknova has federal and state net operating loss (NOL) carryforwards of $13.7 million and $11.7 million, respectively. The federal NOL carryforwards will carryforward indefinitely but are subject to an 80% taxable income limitation. The state NOL carryforwards begin to expire in 2036. As of December

31, 2021, the Company has federal research and development tax credit carryforwards of $0.1 million, which will begin to expire in 2035 and state research and development tax credit carryforward that are insignificant and carry forward indefinitely. NOLs and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of NOLs and tax credits that the Company can utilize annually to offset future taxable income or tax liabilities.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted. The CARES Act, among other things, includes changes to the tax provisions that benefits business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act, including, permitting NOLs, carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. As a result, the Company's 2020 effective tax rate includes an income tax benefit related to the anticipated refunds from tax losses generated in prior years that are permitted to be carried back to certain years when the U.S. federal income tax rate was 34%.

On June 29, 2020, the California legislature enacted California Assembly Bill 85 (AB 85), which suspends the use of California NOLs and limits the use of California research tax credits for tax years beginning in 2020 and before 2023. The Company’s 2020 state income tax has increased as a result of restrictions on the utilization of tax attributes. There is no significant impact on the Company's 2021 financial statements due to the loss generated. Subsequently on February 9, 2022, California Senate Bill (SB 113) was enacted and restores the use of net operating losses and business tax credits that were suspended or limited under AB 85 one year earlier, allowing tax attributes to be used in fiscal year 2022. The tax impact of the new legislation, if any, will be recorded in the first quarter of fiscal year 2022 in the period of enactment.

The Company had no unrecognized tax benefits at December 31, 2021 and 2020. In connection with FASB’s Accounting for Uncertainty in Income Taxes, the Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not expect to recognize any unrecognized tax benefits over the next twelve months. Consequently, the Company has not accrued interest or penalties related to uncertain tax positions as of the end of December 31, 2021 or 2020.

Teknova files income tax returns in the U.S. federal jurisdiction and various states. The Company is no longer subject to U.S. federal income tax examinations for tax years prior to 2018. The Company is no longer subject to state income tax examinations for tax years prior to 2017. The Company is currently not under examination by the Internal Revenue Service or any other taxing authorities.