Stamps.com 2014 Annual Report Download - page 84

STAMPS.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Our effective tax rate differs from the statutory federal income tax rate primarily as a result of the release 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, 2014 and 2013 are presented
below (in thousands):
We have NOL carry-forwards of approximately $165 million and $8 million for federal and state income tax purposes, respectively, at
December 31, 2014 which can be carried forward to offset future taxable income. We have available tax credit carry-forwards of approximately
$4.1 million and $1.9 million, net of unrecognized tax benefit for federal and state income tax purposes, respectively at December 31, 2014,
which can be carried forward to offset future taxable liabilities. Our federal NOLs will begin to expire in 2020. 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. We have
made an accounting policy election to exclude from the measurement of the excess tax deduction any indirect effects of the tax deduction.
Accordingly, deferred tax assets are not recognized for NOL carry-forwards resulting from excess tax benefits. As of December 31, 2014,
deferred tax assets do not include approximately $14.9 million of these tax-effected excess tax benefits from employee stock option exercises
that are a component of our NOL carry-forwards. Accordingly, additional paid-in capital will increase up to an additional $14.9 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, 2014 we were at approximately 11% level compared with the 50% level that would trigger impairment of our NOLs.
F-27
Table of Contents
2014
2013
Deferred tax assets (liabilities):
Net operating loss carryforward
$
41,827
$
57,277
Tax credits
5,992
7,555
Depreciation
(571
)
(775
)
Amortization
211
322
Contingent consideration
3,133
—
Accruals
3,224
3,157
Total deferred tax assets
53,816
67,536
Valuation allowance
—
(
27,274
)
Net deferred tax assets
$
53,816
$
40,262