|12 Months Ended|
Dec. 31, 2017
|Income Tax Disclosure [Abstract]|
16. Income Taxes
Net loss before tax provision consists of the following (in thousands):
The components of the provision for income tax expense consist of the following for the periods indicated (in thousands):
Reconciliation of the statutory federal income tax rates consist of the following for the periods indicated:
The components of deferred tax assets (liabilities) included on the consolidated balance sheet are as follows (in thousands):
The Company’s effective tax rate for the period ended December 31, 2017 was lower than the statutory tax rate primarily because of the valuation allowance on its US deferred tax assets taxed at lower rates, partially offset by state taxes and tax credits. The income tax expense for the year ended December 31, 2017, 2016 and 2015 relate to state minimum income tax.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (the “Act”) into law. The new legislation decreases the U.S. corporate federal income tax rate from 35% to 21% effective January 1, 2018. There was no impact on recorded deferred tax balances as the remeasurement of net deferred tax assets was offset by a change in valuation allowance. The Act also includes a number of other provisions including the elimination of loss carrybacks and limitations on the use of future losses, repeal of the Alternative Minimum Tax regime, and the introduction of a base erosion and anti-abuse tax. These provisions are not expected to have immediate effects on the Company.
Based on the available objective evidence at this time, management believes that it is more likely than not that the net deferred tax assets of the Company will not be fully realized. Accordingly, management has applied a full valuation allowance against net deferred tax assets at both December 31, 2017 and December 31, 2016. The net valuation allowance increased by approximately $4.2 million during the year ended December 31, 2017. The increase in net valuation allowance primarily relates to net operating losses generated during 2017 partially offset by a decrease related to the lower U.S. corporate federal income tax rate effective January 1, 2018.
The Company has Federal and California net operating loss carry-forwards of approximately $24.6 million and $2.7 million, respectively, available to reduce future taxable income which will begin to expire in December 31, 2034 for Federal and California purposes.
At December 31, 2017, the Company had research and development credits carryforward of approximately $0.3 million and $0.5 million for Federal and California income tax purposes, respectively. If not utilized, the Federal research and development credits carryforward will begin to expire in December 31, 2034. The California credits can be carried forward indefinitely.
Utilization of the Company’s net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of net operating loss carryforwards prior to utilization.
The Company’s policy is to account for interest and penalties as income tax expense. As of December 31, 2016, the Company had no interest related to unrecognized tax benefits. No amounts of penalties related to unrecognized tax benefits were recognized in the provision for income taxes.
The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgement and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as income tax expense. At December 31, 2017, the Company’s total amount of unrecognized tax benefit was approximately $0.2 million, none of which will affect the effective tax rate, if recognized. The Company does not expect its unrecognized benefits to change materially over the next twelve months.
The Company files income tax returns with the United States federal government and the State of California. The Company’s tax returns for the prior years remain open to audit for Federal and California purposes.
Prior to January 1, 2017, the Company recognized the excess tax benefits of stock-based compensation expense as additional paid-in capital (“APIC”), and tax deficiencies of stock-based compensation expense in the income tax provision or as APIC to the extent that there were sufficient recognized excess tax benefits previously recognized. As a result of the prior requirement that excess tax benefits reduce taxes payable prior to be recognized as an increase in paid in capital, the Company had not recognized certain deferred tax assets (all tax attributes such as loss or credit carryforwards) that could be attributed to tax deductions related to equity compensation in excess of compensation recognized for financial reporting.
Effective as of January 1, 2017, the Company adopted a change in accounting policy in accordance with ASU 2016-09 to account for excess tax benefits and tax deficiencies as income tax expense or benefit, and to recognize previously unrecognized deferred tax assets that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation recognized for financial reporting. The change was applied on a modified retrospective basis; no prior periods were restated as a result of this change in accounting policy.
ASU 2016-09 also eliminates the requirement that excess tax benefits be realized as a reduction in current taxes payable before the associated tax benefit can be recognized as an increase in paid in capital. Approximately $0.2 million of capitalized start-up costs (none of which were included in the deferred tax assets recognized in the statement of financial position as of December 31, 2016) have been attributed to tax deduction for stock-based compensation in excess of the related book expense. Under ASU 2016-09, these previously unrecognized deferred tax assets were recognized on a modified retrospective basis as of January 1, 2017, the start of the year in which the Company adopted ASU 2016-09. The capitalized start-up costs recognized as of January 1, 2017, as described above, have been offset by a valuation allowance. As a result, there was no tax-related cumulative-effect to retained earnings for US tax purpose.
The Company made the election to early adopt ASU 2015-17 at December 31, 2016 to classify all deferred tax assets and liabilities, along with any related valuation allowance, as noncurrent on the balance sheet.
No definition available.
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.
Reference 1: http://www.xbrl.org/2003/role/presentationRef