Income Taxes

12 Months Ended

Dec. 31, 2019

The components of our provision from income taxes is as follows:



	Year Ended December 31,
	2019			2018			2017
Current:
Federal	$	6,689		$	4,137		$	1,304
State	844			466			2,409
	$	7,533		$	4,603		$	3,713
Deferred:
Federal	392			(2,565		)	18,045
State	(240		)	97			(756		)
	$	152		$	(2,468	)	$	17,289

Provision for income taxes	$	7,685		$	2,135		$	21,002

The reconciliation of the statutory U.S. Federal income tax rate to the Company's effective income tax rate is as follows;



	Year Ended December 31,
	2019		2018		2017
Federal statutory tax rate	21	%	21	%	35	%
State income taxes, net of federal benefit	2	%	1	%	3	%
Tax benefit on stock option exercises, net of forfeitures	1	%	(11	)%	(4	)%
R&D tax credits and Orphan Drug credits	(2	)%	(7	)%	(10	)%
Limitation on executive compensation	10	%	3	%	N/A
Revaluation of net deferred tax assets due to U.S. tax reform	—	%	—	%	5	%
Change in valuation allowance	4	%	—	%	—	%
Other	(1	)%	(1	)%	—	%
Effective tax rate	35	%	6	%	29	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets were as follows:



	December 31,
	2019			2018
Deferred tax assets
Net operating loss carryforward	$	243		$	—
Stock based compensation	10,647			7,934
Research and development and other tax credit carryforwards	—			3,251
Inventories	1,539			1,767
Employee-related expenses	51			732
Prepaid R&D expenses	620			761
Intangible assets	662			—
ROU asset	925			—
Other	1,017			64
Total deferred tax assets	15,704			14,509

Deferred tax liabilities
Intangible assets	—			280
Prepaid expenses	43			34
Fixed assets	203			282
Lease liability	838			—
Other	—			91
Total deferred tax liabilities	1,084			687
Valuation allowance	(951		)	—
Net deferred tax assets	$	13,669		$	13,822

The Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017, significantly revised U.S. corporate income tax law by, among other things, reducing the corporate income tax rate to 21% and implementing a modified territorial tax system. In response to the Tax Act, the SEC issued SAB 118 which allows issuers to recognize provisional estimates of the impact of the Tax Act in their financial statements and adjust in the period in which the estimate becomes finalized, or in circumstances where estimates cannot be made, to disclose and recognize within a one year measurement period.

Implementation of the Tax Act resulted in an approximate $3.4 million charge for the revaluation of the Company’s net deferred tax assets during the year ended December 31, 2017. In reaching these estimates, the Company utilized all available guidance and notices issued by the U.S. Department of the Treasury. During 2018, the Company finalized the impact of the Tax Act. An immaterial adjustment was recorded in the year ended December 31, 2018.

As a result of attaining profitability and the expectation that substantially all net operating loss carryforwards would be utilized in 2017, the Company performed a formal tax evaluation to determine maximum research and development credits that are available based on current law. As a result of the evaluation of historical records and data, our tax filings, and various tax law interpretations related to the R&D credit availability, additional tax credits were identified. The Company recorded an adjustment of such tax credits of $5.5 million resulting in a reduction of income tax expense in 2017.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued ASC 740-10, Uncertainty in Income Taxes, which defines the threshold for recognizing the benefits of tax-return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authorities. This statement also requires explicit disclosure requirements about a Company’s uncertainties related to their income tax position, including a detailed roll forward of tax benefits taken that do not qualify for financial statement recognition.

The Company files income tax returns in the U.S. federal jurisdiction and several states. Given that the company has incurred tax losses in most years since its inception, all of the Company’s tax years are effectively open to examination. The Company is under audit by three states tax jurisdiction as of December 31, 2019. The Company has no amount recorded for any unrecognized tax benefits as of December 31, 2019. The Company regularly evaluates its tax positions for additional unrecognized tax benefits and associated interest and penalties, if applicable. There are many factors that are considered when evaluating these tax positions including: interpretation of tax laws, recent tax litigation on a position, past audit or examination history, and subjective estimates and assumptions.