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Income Taxes
 12 Months Ended
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.