| Income Taxes | 13. Income Taxes The Company files income tax returns in the U.S. federal, the United Kingdom (“U.K.”), Israel and various state jurisdictions. For the years ended December 31, 2020, 2019 and 2018, the income tax provision was comprised of the following:
Year Ended December 31,
2020
2019
2018
(in thousands)
Current:
Federal
$
(19,491
)
$
328
$
(2,934
)
State
906
(1,139
)
3,827
Foreign
7,016
327
335
Total current
(11,569
)
(484
)
1,228
Deferred:
Federal
(25,237
)
(5,851
)
2,608
State
647
(1,791
)
(884
)
Foreign
15,062
(84
)
—
Total deferred
(9,528
)
(7,726
)
1,724
Total income tax (benefit) expense
$
(21,097
)
$
(8,210
)
$
2,952
Income (loss) before provision for income taxes for the years ended December 31, 2020, 2019 and 2018, was as follows:
Year Ended December 31,
2020
2019
2018
(in thousands)
Domestic source
$
(176,896
)
$
(29,227
)
$
80,878
Foreign source
(62
)
2,451
555
Income (loss) before provision for income taxes
$
(176,958
)
$
(26,776
)
$
81,433
The following is a reconciliation of income taxes computed at the U.S. federal statutory rate to the income taxes reported in the consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018:
Year Ended December 31,
2020
2019
2018
(in thousands)
Income tax expense (benefit) at statutory rate
$
(37,161
)
$
(5,623
)
$
17,101
Excess compensation
2,968
1,786
1,753
State income taxes
(13,468
)
(1,134
)
1,563
Stock-based compensation
(395
)
145
(15,924
)
Research and development tax credit
(2,861
)
(2,995
)
(1,470
)
Uncertain tax position
—
67
(545
)
Foreign rate differential
45
(18
)
(57
)
Meals and entertainment
288
659
292
Transaction costs
1,837
—
897
CARES Act
(9,740
)
—
—
Foreign tax restructuring
(5,551
)
—
—
State rate change
(1,805
)
(1,055
)
(315
)
Valuation allowance
46,047
(262
)
262
All other
(1,301
)
220
(605
)
Total income tax (benefit) expense
$
(21,097
)
$
(8,210
)
$
2,952
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “ December 31, 2020 net operating the CARES Act. On December 27, 2020, the Consolidated Appropriations Act of 2021 (“the Appropriations Act”) was signed into law. The Appropriations Act, among other things includes provisions related to the deductibility of Paycheck Protection Program (“PPP”) expenses paid with PPP loan proceeds, payroll tax credits, modifications to the meals and entertainment deduction, increased limitations on charitable deductions for corporate taxpayers, and enhancements of expiring tax “extender” provisions. The Company has completed its assessment of the impact of the legislation, and there is no significant impact to the consolidated financial statements. On December 31, 2020, Tapingo Ltd., the Company’s Israeli subsidiary, sold its intellectual property to Grubhub Holdings Inc. (the “Foreign Tax Restructuring”) resulting in a $5.6 million benefit for the year ended December 31, 2020. The sale of the intellectual property intangibles was unilaterally negotiated with the Israeli tax authorities and was undertaken to better reflect the usage of the related intangibles in the U.S. versus in Israel. The tax effects of temporary differences giving rise to deferred income tax assets and liabilities as of December 31, 2020 and 2019 were as follows:
As of December 31,
2020
2019
(in thousands)
Deferred tax assets:
Loss and credit carryforwards
$
126,199
$
84,153
Accrued expenses
4,641
—
Stock-based compensation
12,425
8,302
Lease accounting
9,246
5,817
Fixed assets - state
6,280
2,514
Total deferred tax assets
158,791
100,786
Valuation allowance
(61,702
)
(15,655
)
Net deferred tax assets
97,089
85,131
Deferred tax liabilities:
Fixed assets
(24,798
)
(8,802
)
Intangible assets
(76,989
)
(99,870
)
Prepaid expenses
(12,937
)
(882
)
Accrued expenses
—
(2,740
)
Total deferred tax liabilities
(114,724
)
(112,294
)
Net deferred tax liability
$
(17,635
)
$
(27,163
) Classification of net deferred tax assets (liabilities) on the consolidated balance sheets as of December 31,
As of December 31,
2020
2019
(in thousands)
Non-current assets
$
142
$
—
Non-current liabilities
(17,777
)
(27,163
)
Total deferred tax liability
$
(17,635
)
$
(27,163
) The Company generated a significant U.S. deferred tax asset in 2020 as a result of the Foreign Tax Restructuring. The Company records a valuation allowance to reduce deferred tax assets to the amount management believes is more likely than not to be realized. The utilization of deferred tax assets is limited by the amount of taxable income expected to be generated within the allowable carryforward period and other factors. In the fourth quarter of 2020, the Company entered a three-year cumulative loss position and due to the uncertainty caused in part by , the Company is no longer relying on forecasted earnings as a source of positive evidence that the Company will be able to utilize its deferred tax assets. Accordingly, the Company recorded a full valuation allowance against U.S. deferred tax assets as of December 31, 2020. $61.7 million against its deferred tax assets and liabilities as of December 31, 2020. As of December 31, 2019, the Company had recorded a partial valuation allowance of $13.2 million against certain state only credits that have a short carryover period for which the Company believed that a portion of the credit carryovers would more likely than not expire before they could be utilized and a $2.5 million partial valuation allowance on Federal and state net operating losses (“NOLs”) that more likely than not will not be utilized. The Tax Act enacted by the U.S. legislature on December 22, 2017 generally allows companies to repatriate future foreign source earnings without incurring additional U.S. taxes by providing a 100% exemption for the foreign source portion of dividends from certain foreign subsidiaries. As a result, the Company plans to repatriate cash from its foreign subsidiaries to the U.S. in the future. The Company estimated no additional tax liability as there are no applicable withholding taxes for the repatriation of unremitted earnings of its foreign subsidiaries. The Company had the following tax loss and credit carryforwards as of December 31, 2020 and 2019:
2020
2019
Beginning Year of Expiration
(in thousands)
U.S. federal loss carryforwards
$
71,115
$
34,268
2027
U.S. state and local loss carryforwards
34,171
21,258
2027
Israeli loss carryforward
—
15,204
Indefinite
Illinois Edge Credits (a)
19,616
15,523
2018
Federal research and development credit
12,856
5,359
2028
State research and development credit
2,026
1,401
2018
(a)
Amounts are before the federal benefit of state tax. __________________________________________________________________________________________________ The Company’s tax returns are subject to the normal statute of limitations, three years from the filing date for federal income tax purposes. The federal and state statute of limitations generally remain open for years in which tax losses are generated until three years from the year those losses are utilized. Under these rules, the 2006 and later year NOLs of Slick City Media, Inc. are still subject to audit by the IRS and state and local jurisdictions. Also, the 2007 and later year NOLs of Grubhub Holdings Inc. and its acquired businesses are still subject to audit by the IRS and state and local jurisdictions. The December 31, 2017 and later period U.K. returns of Seamless Europe Ltd. are subject to examination by the U.K. tax authorities. The December 31, 2019 and later period Israeli returns of Tapingo Ltd. are subject to exam by the Israeli tax authorities. The Company is currently under examination by the Internal Revenue Service for its federal income tax return for the tax year ended December 31, 2017. The Company does not believe, but cannot predict with certainty, that there will not be any additional tax liabilities, penalties and/or interest as a result of the audit. The Company is subject to taxation in the U.S. federal and various state jurisdictions. Significant judgment is required in determining the provision for income taxes and recording the related income tax assets and liabilities. The Company’s practice for accounting for uncertainty in income taxes is to recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not criteria, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The following table summarizes the Company’s unrecognized tax benefit activity during the years ended December 31, 2020 and 2019, excluding the related accrual for interest:
As of December 31,
2020
2019
(in thousands)
Balance at beginning of period
$
818
$
751
Reductions for tax positions taken in prior years
(818
)
—
Additions for tax positions taken in the current year
—
67
Balance at end of period
$
—
$
818
Deferred tax assets that related to the potential settlement of these unrecognized tax benefits were included in the net deferred tax liabilities on the consolidated balance sheets as of December 31, 2019. The reserve related to research and development credits. The Company records interest and penalties, if any, as a component of its income tax (benefit) expense in the consolidated statements of operations. No interest expense or penalties were recognized during the years ended December 31, 2020, 2019 and 2018. |
