Stamps.com 2013 Annual Report Download - page 71

STAMPS.COM INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Our effective tax rate differs from the statutory federal income tax rate primarily as a result of the establishment of a valuation allowance for the
future benefits to be received from the deferred tax assets including net operating loss carryforwards and tax credit carryforwards. The tax effect
of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 2013 and 2012 are
presented below (in thousands):
We have NOL carryforwards of approximately $200 million and $95 million for federal and state income tax purposes, respectively, at
December 31, 2013 which can be carried forward to offset future taxable income. We have available tax credit carryforwards of approximately
$4.0 million and $3.5 million for federal and state income tax purposes, respectively at December 31, 2013, which can be carried forward to
offset future taxable liabilities. Our federal NOLs will begin to expire in 2020, and our state NOLs have begun to expire. The federal tax credits
begin to expire in 2018. Under California law, California tax credits do not have an expiration date.
We recognize excess tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. Accordingly,
deferred tax assets are not recognized for NOL carryforwards resulting from excess tax benefits. As of December 31, 2013, deferred tax assets
do not include approximately $18.2 million of these tax effected excess tax benefits from employee stock option exercises that are a component
of our NOL carryforwards. Accordingly, additional paid-in capital will increase up to an additional $18.2 million if and when such excess tax
benefits are realized.
The Federal Tax Reform Act of 1986 and similar state tax laws contain provisions that may limit the NOL carryforwards to be used in any given
year upon the occurrence of certain events, including a significant change in ownership interests. We maintain a study to understand the status of
net operating losses. Based on that study, we believe that we have not undergone an Internal Revenue Code (IRC) Section 382 change of
ownership that would trigger an impairment of the use of our NOLs since our secondary offering in December 1999. Under IRC Section 382
rules, a change in ownership can occur whenever there is a shift in ownership by more than 50 percentage points by one or more “5%
shareholders” within a three-year period. When a change of ownership is triggered, the NOLs may be impaired. We estimate that, as of
December 31, 2013 we were at approximately 19% level compared with the 50% level that would trigger impairment of our NOLs.
F-21
Table of Contents
2013
2012
Deferred tax assets (liabilities):
Net operating loss carryforward
$
57,277
$
63,830
Tax credits
7,555
5,467
Depreciation
(775
)
(139
)
Amortization
322
494
Accruals
3,157
2,214
Total deferred tax assets
67,536
71,866
Valuation allowance
(27,274
)
(41,317
)
Net deferred tax assets
$
40,262
$
30,549