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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income (loss) before income taxes included the following components for the years ended December 31 (in thousands):
| 2019 |  | 2018 |  | 2017
United States | $ | (1,449 | ) |  | $ | 25,751 |  |  | $ | 14,978 |
Foreign | 3,519 |  |  | 2,353 |  |  | 783 |
Total | $ | 2,070 |  |  | $ | 28,104 |  |  | $ | 15,761 |
Significant components of the provision for income taxes are as follows for the years ended December 31 (in thousands):
| 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
Federal | $ | 4,247 |  |  | $ | 4,900 |  |  | $ | 6,039 |
State | 2,414 |  |  | 1,377 |  |  | 1,263 |
Foreign | 1,533 |  |  | 228 |  |  | 656 |
Total current | 8,194 |  |  | 6,505 |  |  | 7,958 |
Deferred: |  |  |  |  |
Federal | (6,060 | ) |  | (8,382 | ) |  | 4,539 |
State | (1,665 | ) |  | (364 | ) |  | (1,631 | )
Foreign | (264 | ) |  | (3 | ) |  | (78 | )
Total deferred | (7,989 | ) |  | (8,749 | ) |  | 2,830 |
Tax impact of unrecorded tax benefits liability | 983 |  |  | 1,143 |  |  | (234 | )
Provision for income taxes (Income tax benefit) | $ | 1,188 |  |  | $ | (1,101 | ) |  | $ | 10,554 |
A reconciliation of our effective income tax rate to the federal statutory rate follows for the years ended December 31 (in thousands):
| 2019 |  | 2018 |  | 2017
Federal income tax at the statutory rate | $ | 435 |  |  | $ | 5,902 |  |  | $ | 5,518 |
State income taxes, net of federal benefit | 526 |  |  | (215 | ) |  | 339 |
Difference between statutory and foreign tax rates | 43 |  |  | 7 |  |  | (560 | )
Permanent differences (1) | 1,139 |  |  | 725 |  |  | 300 |
Executive compensation limitation | 7,596 |  |  | 1,167 |  |  | — |
Research and development | (4,911 | ) |  | (6,908 | ) |  | (2,380 | )
Return to provision adjustment | (9 | ) |  | 1,780 |  |  | 23 |
Change in liability for unrecognized tax benefits | 1,191 |  |  | 1,768 |  |  | 7 |
Excess stock-based compensation benefit | (4,999 | ) |  | (8,907 | ) |  | (1,819 | )
Change in valuation allowance | 368 |  |  | 1,984 |  |  | 1,949 |
Tax effects of intercompany transactions | 16 |  |  | 1,004 |  |  | (277 | )
Adjustments to deferred tax assets, net resulting from enactment of new tax law (2) | — |  |  | — |  |  | 7,601 |
Other | (207 | ) |  | 592 |  |  | (147 | )
Provision for income taxes (Income tax benefit) | $ | 1,188 |  |  | $ | (1,101 | ) |  | $ | 10,554 |
Effective tax rate | 57.4 | % |  | (3.9 | )% |  | 66.9 | %
(1) | Permanent differences include certain expenses that are not deductible for tax purposes including meals and entertainment, certain transaction costs, lobbying fees, and taxable income as a result of global intangible low-tax income ("GILTI") offset by favorable items including the domestic production activities deduction, for tax year 2017, and a deduction for foreign derived intangible income ("FDII") beginning in 2018.
(2) | The adjustment to deferred tax assets of $7.6 million in 2017 was a result of the impact of changes in the U.S. federal effective tax rate, as well as a reduction of the stock-based compensation deferred tax asset due to expected permanent limitations on its deductibility for certain key executives under the Tax Cuts and Jobs Act.
Significant components of our deferred income tax assets and liabilities are as follows at December 31 (in thousands):
| 2019 |  | 2018
Deferred income tax assets: |  |  |
Net operating loss carryforward | $ | 2,341 |  |  | $ | 2,347 |
Deferred revenue | 15,348 |  |  | 13,304 |
Deferred compensation | 971 |  |  | 858 |
Lease liability | 2,460 |  |  | — |
Inventory reserve | 1,258 |  |  | 1,294 |
Stock-based compensation | 10,769 |  |  | 3,758 |
Amortization | 1,133 |  |  | 412 |
Research and development tax credit carryforward | 4,957 |  |  | 5,193 |
Reserves, accruals, and other | 3,394 |  |  | 3,094 |
Total deferred income tax assets | 42,631 |  |  | 30,260 |
Deferred income tax liabilities: |  |  |
Customer contract asset | (883 | ) |  | — |
Right of use asset | (2,228 | ) |  | — |
Depreciation | (3,715 | ) |  | (2,195 | )
Amortization | (62 | ) |  | (57 | )
Other | (1,237 | ) |  | (1,232 | )
Total deferred income tax liabilities | (8,125 | ) |  | (3,484 | )
Net deferred income tax assets before valuation allowance | 34,506 |  |  | 26,776 |
Valuation allowance | (7,172 | ) |  | (7,429 | )
Net deferred income tax assets | $ | 27,334 |  |  | $ | 19,347 |
We have $1.2 million of state net operating losses (“NOLs”) which expire at various dates between 2029 and 2036. We also have a federal NOL of $0.8 million which expires in 2036, and is subject to limitation under Internal Revenue Code (“IRC”) Section 382. We have $0.1 million of federal R&D credits, which expire between 2034 and 2037, and are also subject to limitation under IRC Section 382. We have $9.2 million of Arizona R&D credits carrying forward, which expire at various dates between 2020 and 2034. In the U.K., Canada, and Australia, we have $8.0 million, $1.2 million, and $1.4 million of NOLs, respectively, which expire at various dates or may be carried forward indefinitely. In preparing our consolidated financial statements, we have assessed the likelihood that deferred income tax assets will be realized from future taxable income. In evaluating the ability to recover its deferred income tax assets, we consider all available evidence, positive and negative, including our operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is more likely than not that some portion or all of the net deferred income tax assets will not be realized. We exercise significant judgment in determining our provision for income taxes, our deferred income tax assets and liabilities, and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred income tax assets. As of December 31, 2019, we continue to demonstrate positive income in the U.S. federal and state tax jurisdictions; however, we have Arizona R&D tax credits expiring unutilized each year. Therefore, we have concluded that it is more likely than not that our Arizona R&D deferred tax asset will not be realized. As of December 31, 2019, we have cumulative pre-tax losses in the U.K. and Canada, which limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, a full valuation allowance has been recorded for these jurisdictions. The amount of the deferred tax asset considered realizable; however, could be adjusted in future periods if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth. Although we also have cumulative pre-tax losses in Australia, we have determined that sufficient deferred tax liabilities will reverse in order to realize all assets except one long-lived intangible asset where there is not an expectation that the deferred tax asset may be realized. Therefore, we have recorded a partial valuation allowance for Australia. We consider the undistributed earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We project that our foreign earnings will be utilized offshore for working capital and future foreign growth. The determination of the unrecognized deferred tax liability on those undistributed earnings is not practicable due to our legal entity structure and the complexity of U.S. and local country tax laws. If we decide to repatriate the undistributed foreign earnings, we will need to recognize the income tax effects in the period we change our assertion on indefinite reinvestment. We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal, Arizona, and California income tax purposes. Management has made the determination that it is more likely than not that the full benefit of the R&D tax credit will not be sustained on examination and recorded a liability for unrecognized tax benefits of $6.1 million as of December 31, 2019. In addition, management accrued approximately $0.1 million for estimated uncertain tax positions related to certain federal income tax liabilities. Should the unrecognized tax benefit of $6.2 million be recognized, our effective tax rate would be favorably impacted. The following table presents a roll forward of our liability for unrecognized tax benefits, exclusive of accrued interest, as of December 31 (in thousands):
| 2019 |  | 2018 |  | 2017
Balance, beginning of period | $ | 6,058 |  |  | $ | 4,243 |  |  | $ | 4,050 |
Increase (decrease) in previous year tax positions | (615 | ) |  | 213 |  |  | 379 |
Increase in current year tax positions | 1,749 |  |  | 1,982 |  |  | 587 |
Decrease due to lapse of statutes of limitations | (331 | ) |  | (380 | ) |  | (773 | )
Balance, end of period | $ | 6,861 |  |  | $ | 6,058 |  |  | $ | 4,243 |
Federal income tax returns for 2016 through 2018 remain open to examination by the U.S. Internal Revenue Service (the “IRS”), while state and local income tax returns for 2015 through 2018 also generally remain open to examination by state taxing authorities. The 2005 through 2014 income tax returns are only open to the extent that net operating loss or other tax attributes carrying forward from those years were utilized in 2015 through 2018. The foreign tax returns for 2015 through 2018 also generally remain open to examination. Our U.S. federal income tax return for fiscal year 2016 is currently under audit by the Internal Revenue Service. We recognize interest and penalties related to unrecognized tax benefits within the provision (benefit) for income tax expense line in the accompanying consolidated statements of operations and comprehensive income. As of December 31, 2019 and 2018, we had accrued interest of $0.2 million and $0.1 million, respectively.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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