Income taxes

12 Months Ended

Dec. 31, 2020

16. Income taxes

The income tax (expense) benefit by jurisdiction recorded as part of continuing operations consists of the following for the years ended December 31:


	2020		2019		2018
U.S. federal:
Current	$	(5)	$	(20)	$	(18)
Deferred		114		115		4,569
Total U.S. federal	$	109	$	95	$	4,551
U.S. state and local:
Current	$	(142)	$	(32)	$	(285)
Deferred		(123)		(35)		1,048
Total U.S. state and local	$	(265)	$	(67)	$	763
Foreign:
Current	$	(1)	$	—	$	(161)
Total foreign	$	(1)	$	—	$	(161)

In 2018, federal, state and local deferred tax expense of $5,686 related to the equity component of the Convertible Notes was recorded as additional paid-in capital.

Income taxes differ from the amounts computed by applying the U.S. federal income tax rate to pretax income before income taxes as a result of the following for the years ended December 31:


	2020		2019		2018
Federal statutory rate	21.0	%	21.0	%	21.0	%
State and local	5.5		11.2		19.7
Foreign rate differential	0.9		0.2		(0.5)
Stock options	2.7		(52.2)		(47.2)
Excess tax benefits from stock-based compensation	(2.9)		95.5		106.4
Non-controlling interests	(0.3)		0.2		5.5
Valuation allowance	(26.7)		(74.7)		(90.7)
Uncertain tax positions	—		—		2.3
Convertible Notes	—		—		94.9
Other	(1.1)		(0.9)		(5.9)
Income taxes	(0.9)	%	0.3	%	105.5	%

We have a foreign subsidiary in the United Kingdom, which has generated losses since inception resulting in a $1,773 deferred tax asset with a corresponding valuation allowance as of December 31, 2020. We also have a majority owned foreign subsidiary in Brazil, which has a $967 deferred tax asset with a corresponding valuation allowance as of December 31, 2020 due to historical operating losses. Foreign income (loss) before income taxes was $400, $(28) and $(577) for 2020, 2019, and 2018, respectively.

As of December 31, 2020, we were in a net tested loss position in our subsidiaries located outside of the U.S. In the event that we generate earnings in these subsidiaries, our intention is to indefinitely reinvest these earnings outside the U.S. If we were to remit our foreign earnings, we would be subject to state income taxes or withholding taxes imposed on actual distributions, or currency transaction gains (losses) that would result in taxation upon remittance. However, the amounts of any such tax liabilities resulting from the repatriation of foreign earnings are not material.

Deferred income tax reflects the tax effects of temporary differences that gave rise to significant portions of our deferred tax assets and liabilities and consisted of the following for the years ended December 31:


	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	46,998	$	44,565
Outside basis differences for U.S. partnerships		7,941		8,656
Operating lease liabilities		4,076		4,695
Deferred revenue		800		782
Deferred compensation		86		623
State taxes		39		44
Stock options		—		—
Other		2,099		939
Valuation allowance		(46,459)		(41,646)
Net deferred tax assets		15,580		18,658
Deferred tax liabilities:
Property and equipment		(5,729)		(6,943)
Convertible Notes		(3,403)		(4,366)
Operating lease right-of-use assets		(2,888)		(3,348)
Intangible assets		(3,106)		(3,079)
Stock options		(1,438)		(1,915)
Net deferred tax liabilities		(16,564)		(19,651)
Net deferred taxes	$	(984)	$	(993)

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2020 and 2019, we had federal net operating loss carryforwards of approximately $170,907 and $164,373, respectively, of which $87,162 will be carried forward indefinitely, state net operating loss carryforwards of approximately $181,488 and $170,831, respectively, and foreign net operating loss carryforwards of $11,710 and $11,671, respectively. The federal net operating loss carryforwards will begin to expire in 2025, and our foreign net operating loss carryforwards have an indefinite life. Our state net operating loss carryforwards will begin to expire in 2032. Our ability to utilize certain of our net operating loss carryforwards may be limited in the event that a change in ownership, as defined in the Internal Revenue Code, occurs in the future.

The following table sets forth the changes in the valuation allowance, for all periods presented:


	Valuation
	Allowance
Balance, December 31, 2017	$	34,990
Decrease credited to operations		(1,180)
Balance, December 31, 2018		33,810
Additions charged to operations		7,843
Decrease credited to operations		(7)
Balance, December 31, 2019		41,646
Additions charged to operations		4,816
Decrease credited to operations		(3)
Balance, December 31, 2020	$	46,459

The decreases credited to operations in 2018 were related to the deferred tax liabilities established against the equity component of the Convertible Notes.

In reaching the determination of the valuation allowance, we have evaluated all significant available positive and negative evidence including, but not limited to, our three-year cumulative results, trends in our business, expected future results and the character, amount and expiration periods of our net deferred tax assets. The underlying assumptions we used in forecasting future income required significant judgment and considered our recent performance.

We recognized interest and penalties related to income tax matters in income taxes. Interest and penalties were not material during the years ended December 31, 2020, 2019, and 2018.

We identify, evaluate and measure all uncertain tax positions taken or to be taken on tax returns and record liabilities for the amount of these positions that may not be sustained, or may only partially be sustained, upon examination by the relevant taxing authorities. Although we believe that our estimates and judgments were reasonable, actual results may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities. As of December 31, 2020 and 2019, we had $0 in uncertain tax positions. We accrue interest and penalties related to unrecognized tax benefits as a component of income taxes.

Our annual income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of judgment. Our judgments, assumptions and estimates relative to current income taxes consider current tax laws, their interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We operate within federal, state and international taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues which may require an extended period to resolve. We are subject to taxation in the United States and in various states. Our tax years 2017 and forward are subject to examination by the IRS and our tax years 2016 and forward are subject to examination by material state jurisdictions. However, due to prior year loss carryovers, the IRS and state tax authorities may examine any tax years for which the carryovers are used to offset future taxable income.

In response to the market volatility and instability resulting from the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act (“TCJA”) that was enacted in the U.S. in December 2017. The CARES Act allows for a five-year carryback of federal NOLs generated in 2018 through 2020 and eliminates the 80% taxable income limitation by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018 through 2020. In addition, the CARES Act generally allows taxpayers to deduct interest up to 50% of adjusted taxable income (30% limit under the TCJA) for tax years 2019 and 2020. The CARES Act also allows taxpayers with prior year alternative minimum tax (repealed by the TCJA) (“AMT”) credits to accelerate refund claims to tax years beginning in 2018 and 2019 instead of recovering the credits over a period of years, as originally enacted by the TCJA.

The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the year ended December 31, 2020, or to our U.S. federal and state net deferred tax liabilities as of December 31, 2020.

- 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.

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