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TABLE OF CONTENTS
STAMPS.COM INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income Taxes – (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, 2010 and 2009 are presented below (in thousands):
We have an NOL carryforward of approximately $226 million and $148 million for federal and state income tax purposes,
respectively, at December 31, 2010 which can be carried forward to offset future taxable income. We have available a tax credit
carryforward of approximately $6.7 million at December 31, 2010 which can be carried forward to offset future taxable
liabilities. Our federal NOLs will begin to expire in 2020; our state NOLs will begin to expire in 2016. The federal tax credits
begin to expire in 2020. Under California law, California tax credits do not have an expiration date.
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 control 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, 2010, we were at
approximately 22% compared with the 50% level that would trigger impairment of our NOLs.
The provision for income taxes consists of (in thousands):
2010
2009
Deferred tax assets (liabilities):
Net operating loss carryforward
$
85,455
$
85,998
Tax credits
4,260
4,260
Depreciation
240
379
Amortization
972
1,189
Accruals
3,380
3,507
Total deferred tax assets
94,307
95,333
Valuation allowance
(86,657
)
(91,662
)
Net deferred tax assets
$
7,650
$
3,671
2010
2009
2008
Current:
Federal
$
34
$
165
$
259
State
—
389
626
34
554
885
Deferred:
Federal
(3,396
)
—
3,134
State
(583
)
—
537
(3,979
)
— (
3,671
)
Provision for income taxes
$
(3,945
)
$
554
$
(2,786
)