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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | 13. Income Taxes For the years ended December 31, 2023, 2022, and 2021, the domestic and foreign components of income before income taxes are as follows:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
United States |  | $ | 50,632 |  |  | $ | 110,213 |  |  | $ | 148,037 |
Foreign |  |  | 1,055 |  |  |  | 1,149 |  |  |  | 1,323 |
Income before income taxes |  | $ | 51,687 |  |  | $ | 111,362 |  |  | $ | 149,360 |
For the years ended December 31, 2023, 2022, and 2021, the components of the provision for (benefit from) income taxes are as follows:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Current provision: |  |  |  |  |  |  |  |  |
Federal |  | $ | 52,352 |  |  | $ | 43,207 |  |  | $ | 22,133 |
State |  |  | 14,614 |  |  |  | 11,140 |  |  |  | 10,438 |
Foreign |  |  | 532 |  |  |  | 175 |  |  |  | 253 |
|  |  | 67,498 |  |  |  | 54,522 |  |  |  | 32,824 |
Deferred (benefit) provision: |  |  |  |  |  |  |  |  |
Federal |  |  | (37,583 | ) |  |  | (20,278 | ) |  |  | 5,698 |
State |  |  | (272 | ) |  |  | (1,789 | ) |  |  | 669 |
Foreign |  |  | (9 | ) |  |  | (47 | ) |  |  | (204 | )
|  |  | (37,864 | ) |  |  | (22,114 | ) |  |  | 6,163 |
Income tax provision |  | $ | 29,634 |  |  | $ | 32,408 |  |  | $ | 38,987 |
For the year ended December 31, 2023, 2022, and 2021, the components of the effective tax rate are as follows:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
U.S. federal taxes at statutory rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
State taxes, net of federal benefit |  |  | 22.1 |  |  |  | 7.7 |  |  |  | 7.5 |
Nondeductible expenses |  |  | 1.4 |  |  |  | 0.5 |  |  |  | 0.3 |
Stock compensation |  |  | 7.3 |  |  |  | 2.8 |  |  |  | 0.3 |
Foreign rate differential |  |  | (0.1 | ) |  |  | (0.1 | ) |  |  | (0.2 | )
Federal and state credits |  |  | (9.5 | ) |  |  | (4.7 | ) |  |  | (2.6 | )
Disallowed officer compensation |  |  | 0.4 |  |  |  | 0.8 |  |  |  | 1.0 |
Investment in partnership |  |  | 4.7 |  |  |  | 1.0 |  |  |  | (0.3 | )
Federal, state, and foreign provision to return differences |  |  | (1.4 | ) |  |  | (0.8 | ) |  |  | (0.7 | )
Uncertain tax provision |  |  | 0.4 |  |  |  | 0.5 |  |  |  | — |
CarOffer and AutoList M&A |  |  | 2.9 |  |  |  | — |  |  |  | — |
Other |  |  | 0.0 |  |  | (0.0) |  |  |  | (0.2 | )
Consolidated effective tax rate |  |  | 49.2 | % |  |  | 28.7 | % |  |  | 26.1 | %
Effective tax rate attributable to redeemable noncontrolling interest |  |  | (4.7 | ) |  |  | (1.0 | ) |  |  | 0.2 |
Effective tax rate attributable to CarGurus, Inc. |  |  | 44.5 | % |  |  | 27.7 | % |  |  | 26.3 | %
For the year ended December 31, 2023, the effective tax rate attributable to CarGurus, Inc. was 44.5%, which is greater than the statutory tax rate of 21%, principally due to state and local income taxes inclusive of the impact from the recently passed Massachusetts apportionment tax rule, shortfalls on the taxable compensation of share-based awards, the Section 162(m) excess officer compensation limitation, and tax impact associated with the 2023 CarOffer Transaction, partially offset by federal and state research and development tax credits. For the year ended December 31, 2022, the effective tax rate attributable to CarGurus, Inc. was 27.7%, which is greater than the U.S. federal statutory rate primarily due to state and local income taxes, the exclusion of loss from investment in partnership, shortfalls on the taxable compensation of share-based awards, and the Section 162(m) excess officer compensation limitation, partially offset by federal and state research and development tax credits. For the year ended December 31, 2021, the effective tax rate attributable to CarGurus, Inc. was 26.3%, which is greater than the U.S. federal statutory rate primarily due to state and local income taxes, shortfalls on the taxable compensation of share-based awards, and the Section 162(m) excess officer compensation limitation, which became applicable in May 2021 upon the expiration of the transition period permitted following the IPO, partially offset by federal and state research and development tax credits. As of December 31, 2023 and 2022, the approximate income tax effect of each type of temporary difference and carryforward is as follows:
|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Deferred tax assets: |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 304 |  |  | $ | 461 |
Credit carryforwards |  |  | 928 |  |  |  | 928 |
Stock-based compensation |  |  | 5,353 |  |  |  | 5,441 |
Lease liability |  |  | 47,907 |  |  |  | 13,557 |
Investment in partnership |  |  | — |  |  |  | 8,325 |
Accruals and reserves |  |  | 4,642 |  |  |  | 3,770 |
Intangible assets |  |  | 20,294 |  |  |  | — |
Capitalized research and development |  |  | 45,468 |  |  |  | 25,342 |
|  |  | 124,896 |  |  |  | 57,824 |
Valuation Allowance |  |  | (305 | ) |  |  | (258 | )
|  |  | 124,591 |  |  |  | 57,566 |
Deferred tax liabilities: |  |  |  |  |  |
Prepaid expenses |  |  | (2,459 | ) |  |  | (2,466 | )
Deferred commissions |  |  | (5,531 | ) |  |  | (4,200 | )
Right of use assets |  |  | (42,531 | ) |  |  | (11,237 | )
Intangible assets |  |  | — |  |  |  | (733 | )
Capital lease |  |  | (72 | ) |  |  | — |
Property and equipment |  |  | (700 | ) |  |  | (3,496 | )
|  |  | (51,293 | ) |  |  | (22,132 | )
Net deferred tax assets |  | $ | 73,298 |  |  | $ | 35,434 |
As of December 31, 2023 and 2022, valuation allowances were immaterial. Based upon the level of historical U.S. earnings and future projections over the period in which the net deferred tax assets are deductible, the Company believes it is more likely than not that it will realize the benefits of these deductible differences, with the exception of the deferred tax asset related to intangible assets in Ireland. For the years ended December 31, 2023 and 2022, the change in the valuation allowance was $47 and $29, respectively. As of December 31, 2023, the Company had federal and state net operating loss (“NOL”) carryforwards of $277 and $3,442, respectively. The federal NOL carryforward, subject to an annual limitation of 80% of taxable income, does not expire. The state NOL carryforwards expire at various dates through 2040. As of December 31, 2023, the Company had federal and state tax credit carryforwards of $673 and $322, respectively, available to reduce future tax liabilities. The federal tax credit carryforward expires in 2040. The state tax credit carryforwards indefinitely as it is related to California. Utilization of the NOL and tax credit carryforwards, respectively, may be subject to an annual limitation due to ownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code (“Section 382”), as well as similar state provisions. Ownership changes may limit the amount of NOL or tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of 5% stockholders in the stock of a corporation by more than 50% in the aggregate over a three-year period. As of December 31, 2023 and 2022, changes in the gross uncertain tax position (excluding interest and penalties) are as follows:
|  | As of December 31, |
|  | 2023 |  |  | 2022 |
Unrecognized tax benefits at beginning of year |  | $ | 598 |  |  | $ | — |
Increase related to current year tax provision |  |  | 178 |  |  |  | 198 |
Increase related to prior year tax provision |  |  | 36 |  |  |  | 400 |
Unrecognized tax benefits at end of year |  | $ | 812 |  |  | $ | 598 |
For the year ended December 31, 2023, income tax expense and liability related to uncertain tax positions, exclusive of immaterial interest or penalties related to uncertain tax provisions, was $812, which would favorably affect the Company's effective tax rate, if recognized. For the year ended December 31, 2022, income tax expense and liability related to uncertain tax positions, exclusive of immaterial interest or penalties related to uncertain tax provisions, was $598, which would favorably affect the Company's effective tax rate, if recognized. The Company permanently reinvests the earnings, if any, of its foreign subsidiaries and, therefore, does not provide for U.S. income taxes that could result from the distribution of those earnings to the Company. As of December 31, 2023 and December 31, 2022, the amount of unrecognized deferred U.S. taxes on these earnings was immaterial. The Company and its subsidiaries are subject to various U.S. federal, state, and foreign income tax examinations. The Company is currently not subject to income tax examination for the tax years of 2019 and prior as a result of applicable statute of limitations of the Internal Revenue Service and a majority of applicable state jurisdictions. The Company is currently not subject to examination in its foreign jurisdictions for tax years 2017 and prior.

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