XML 26 R17.htm IDEA: XBRL DOCUMENT v3.22.2
Income Taxes
 6 Months Ended
Jun. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income taxes
MediaAlpha, Inc. is taxed as a corporation and pays corporate federal, state and local taxes on income allocated to it from QLH based upon MediaAlpha, Inc.’s economic interest held in QLH. QLH is treated as a pass-through partnership for income tax reporting purposes and is not subject to federal income tax. Instead, QLH’s taxable income or loss is passed through to its members, including MediaAlpha, Inc. Accordingly, the Company is not liable for income taxes on the portion of QLH’s earnings not allocated to it. MediaAlpha, Inc. files and pays corporate income taxes for U.S. federal and state income tax purposes and its corporate subsidiary, Skytiger Studio, Ltd., is subject to taxation in Taiwan. The Company expects this structure to remain in existence for the foreseeable future.
The Company estimates the annual effective tax rate for the full year to be applied to actual year-to-date income (loss) and adds the tax effects of any discrete items in the reporting period in which they occur. The Company’s effective income tax rate was (4.9)% and (8.3)% for the three and six months ended June 30, 2022, respectively. The Company’s effective income tax rate was 24.6% and 68.7% for the three and six months ended June 30, 2021, respectively.
The following table summarizes the Company's income tax expense (benefit):
Three months ended
June 30,		Six Months Ended
June 30,
(in thousands, except percentages)2022202120222021
(Loss) before income taxes$(12,411)$(509)$(21,116)$(712)
Income tax expense (benefit)$611 $(125)$1,754 $(489)
Effective Tax Rate(4.9)%24.6 %(8.3)%68.7 %
The Company's effective tax rate of (4.9)% and (8.3)% for the three and six months ended June 30, 2022 differed from the U.S. federal statutory rate of 21%, due primarily to nondeductible equity-based compensation, losses associated with non-controlling interests not taxable to the Company, state taxes, and other nondeductible permanent items.
There were no material changes to the Company’s unrecognized tax benefits during the three and six months ended June 30, 2022, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.
During the three and six months ended June 30, 2022, holders of Class B-1 units exchanged a total of 297,747 and 357,944 Class B-1 units, respectively, together with an equal number of shares of Class B common stock, for shares of Class A common stock on a one-for-one basis (the “Exchanges”). In connection with the Exchanges, the Company recognized an additional deferred tax asset of $1.1 million and $1.3 million during the three and six months ended June 30, 2022, respectively, associated with the basis difference in its investment in QLH. As of June 30, 2022, the total deferred tax asset related to the basis difference in the Company's investment in QLH was $80.0 million. The Company also recognized $0.3 million and $0.4 million of deferred tax assets for the three and six months ended June 30, 2022, respectively, related to additional tax basis increases generated from expected future payments under the Tax Receivables Agreement (“TRA”) and expected future deductions for imputed interest on such payments.
The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of June 30, 2022, there were no material changes to the Company's valuation allowance and the Company's assessment of the realizability of its deferred tax assets.
Tax Receivables Agreement
In connection with the Reorganization Transactions and the IPO, the Company entered into the TRA with Insignia, White Mountains, and the Senior Executives. The Company expects to obtain an increase in its share of the tax basis in the net assets of QLH as Class B-1 units are exchanged for shares of Class A common stock (or, at the Company's election, redeemed for cash of an equivalent value). The Company intends to treat any redemptions and exchanges of Class B-1 units as direct purchases for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that it would otherwise pay in the future to various tax authorities.
The Exchanges resulted in an increase in the tax basis of the Company's investment in QLH subject to the provisions of the TRA. As a result, the Company recognized an additional liability in the amount of $1.4 million and $1.6 million for the TRA-related payments during the three and six months ended June 30, 2022, respectively, representing 85% of the aggregate tax benefits it expects to realize from the increases in tax basis related to the redemption of Class B-1 units, after concluding it was probable that such TRA payments would be paid based on management's estimates of future taxable income.
During the three and six months ended June 30, 2022 , the Company paid $0 and $0.2 million pursuant to the TRA, respectively. As of June 30, 2022, the total amount of payments expected to be paid under the TRA was $86.1 million, of which $2.8 million was included in accrued expenses on the Company's consolidated balance sheets.