14. Income Tax

For financial reporting purposes, income (loss) before income taxes included the following components for the years ended December 31, 2013, 2012, and 2011 (in thousands):


	For the Years Ended December 31,
	2013			2012			2011
United States	$	(108,901	)	$	(31,243	)	$	24,668
Foreign		(1,281	)		(435	)		—

Income (loss) before income taxes	$	(110,182	)	$	(31,678	)	$	24,668

Significant components of the provision for income taxes for the years ended December 31, 2013, 2012, and 2011, are as follows (in thousands):


	For the Years Ended December 31,
	2013		2012		2011
Current:
Federal	$	—	$	—	$	—
State		286		233		117

		286		233		117

Deferred:
Federal		758		742		872
State		63		61		64

		821		803		936

Total	$	1,107	$	1,036	$	1,053

The provision for income taxes differs from income taxes computed at the federal statutory tax rates for the years ended December 31, 2013, 2012, and 2011 as a result of the following items:


	For the Years Ended December 31,
	2013			2012			2011
Federal statutory rate		35.0	%		35.0	%		35.0	%
Effect of:
State income taxes-net of federal tax benefit		1.7			2.8			2.9
Fair value derivative adjustments		(11.7	)		10.7			(90.2	)
Change in valuation allowance		(25.7	)		(45.6	)		56.6
Write off of deferred equity financing costs		—			(5.6	)		—
Other		(0.3	)		(0.6	)		—

Effective tax rate		(1.0	)%		(3.3	)%		4.3	%

Components of the net deferred income tax asset as of December 31, 2013 and 2012 are as follows (in thousands):


	December 31,			December 31,
	2013			2012
Deferred income tax assets:
Compensation accruals	$	6,021		$	3,544
Stock options		4,041			2,595
Inventory		243			197
Warranty reserves		333			330
Deferred rent		1,795			1,804
Deferred revenue		22,592			17,430
Federal net operating loss (NOL)		63,731			41,556
State NOL		5,228			3,435
UNICAP adjustment		3,611			3,333
Finite-lived intangible assets		19,487			21,018
Other		2,210			1,817

Total deferred income tax assets		129,292			97,059

Deferred income tax liabilities:
Fixed assets		(13,141	)		(8,514	)
Indefinite-lived intangible assets		(5,770	)		(4,949	)
Other		(111	)		(63	)

Total deferred income tax liabilities		(19,022	)		(13,526	)

Total deferred income tax		110,270			83,533
Valuation allowance		(116,040	)		(88,482	)

Net deferred income tax liability	$	(5,770	)	$	(4,949	)

We assess the realizability of the deferred tax assets by considering whether it is more likely than not that some portion or all of the deferred tax assets would not be realized through the generation of future taxable income. We generated net losses in fiscal years 2013, 2012, and 2011, which means we are in a domestic three-year cumulative loss position. As a result of this and other assessments in fiscal 2013, we concluded that a full valuation allowance is required for all deferred tax assets and liabilities except for deferred tax liabilities associated with indefinite-lived intangible assets.

As of December 31, 2013, the federal net operating loss (“NOL”) carryforward amount was approximately $182 million and the state NOL carryforward amount was approximately $107 million. The federal NOLs begin to expire in 2031. The state NOLs expire in various tax years beginning in 2016.

Utilization of our NOL and tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations could result in the expiration of the NOL and tax credit carryforwards before their utilization. The events that may cause ownership changes include, but are not limited to, a cumulative stock ownership change of greater than 50% over a three-year period.

We are subject to taxation in the United States, Canada, Switzerland and various states. With few exceptions, as of December 31, 2013, we are no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2010.


	For the Years Ended December 31,
	2013			2012		2011
Unrecognized tax benefits—January 1	$	223		$	—	$	—
Additions based on tax positions related to the prior year		—			223		—
Reductions based on tax positions related to the prior year		(223	)		—		—

Unrecognized tax benefits—December 31	$	—		$	223	$	—

We record penalties and interest relating to uncertain tax positions in the income tax provision line item in the consolidated statement of operations. No penalties or interest related to uncertain tax positions were recorded for the years ended December 31, 2013, 2012 or 2011. As of December 31, 2013 and 2012, we did not have a liability recorded for interest or potential penalties.

We do not expect there will be a change in the unrecognized tax benefits within the next 12 months.

On September 13, 2013, the IRS issued final regulations and re-proposed regulations that provide guidance with respect to (i) the treatment of material and supplies, (ii) capitalization of amounts paid to acquire or produce tangible property, (iii) the determination of whether an expenditure with respect to tangible property is a deductible repair or a capital expenditure and (iv) dispositions of MACRS property. The final regulations will be effective for our fiscal year ending December 31, 2014. We are reviewing the regulations, but we do not believe there will be a material impact on our results of operations, financial position, or cash flows.