Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.22.2
Income Taxes
 6 Months Ended
Jun. 30, 2022
Income Taxes  
Income Taxes

Note 16. Income Taxes

In determining the quarterly provision for income taxes, the Company used the annual effective tax rate applied to year-to-date income. The Company’s annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes, permanent differences, and changes in the Company’s valuation allowance. The income tax effects of unusual or infrequent items including a change in the valuation allowance as a result of a change in judgment regarding the realizability of deferred tax assets are excluded from the estimated annual effective tax rate and are required to be discretely recognized in the interim period they occur.

The Company has historically maintained a valuation allowance against deferred tax assets and reported only minimal current state tax expense. For the three and six months ended June 30, 2022, the Company recorded income tax expense of approximately

$160,000 and $185,000 respectively. The Company expects to maintain a valuation allowance on current year remaining net deferred tax assets by year-end due to historical operating losses.

The Company recorded an income tax benefit of approximately $2.6 million for both the three and six months ended June 30, 2021. The tax benefit was primarily the result of the release of the valuation allowance against historical deferred tax assets and recognition of benefit from the current year projected loss. Net deferred tax liabilities of approximately $3.3 million recorded in connection with the E4:9 Holdings, Inc. and LiveBy, Inc. acquisitions provided a source of taxable income to support the realizability of approximately $1.6 million of pre-existing deferred tax assets, as well as deferred tax assets from the projected loss for the year ended December 31, 2021. The taxable temporary differences relating to the amortizable intangible assets supported the realization of the net operating loss carryforwards. As a result of the transactions, the Company discretely released the historical valuation allowance and recognized a deferred tax benefit on a portion of losses for the three and six months ended June 30, 2021.