SmartRent, Inc. Income Taxes Disclosure
NOTE 9. INCOME TAXES
The Company's components of income tax (benefit) expense consisted of the following.
|
|
Years Ended December 31, |
|
|||||||||
Income Tax Provision |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
(24 |
) |
|
$ |
(80 |
) |
|
$ |
- |
|
Foreign |
|
|
68 |
|
|
|
28 |
|
|
|
99 |
|
State and local |
|
|
182 |
|
|
|
117 |
|
|
|
233 |
|
Current provision |
|
|
226 |
|
|
|
65 |
|
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
41 |
|
|
|
(173 |
) |
|
|
(4,390 |
) |
Foreign |
|
|
- |
|
|
|
- |
|
|
|
(3 |
) |
State and local |
|
|
- |
|
|
|
- |
|
|
|
(1,327 |
) |
Deferred (benefit) provision |
|
|
41 |
|
|
|
(173 |
) |
|
|
(5,720 |
) |
Income tax (benefit) expense |
|
$ |
267 |
|
|
$ |
(108 |
) |
|
$ |
(5,388 |
) |
The following table presents a reconciliation of the Company’s effective tax rates for the periods indicated.
|
|
Years Ended December 31, |
|
|||||||||
Rate Reconciliation |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
U.S. statutory rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
|
|
21.0 |
% |
State rate net of fed benefit |
|
|
7.5 |
% |
|
|
2.7 |
% |
|
|
3.4 |
% |
Change in valuation allowance |
|
|
(27.9 |
%) |
|
|
(28.3 |
%) |
|
|
(18.2 |
%) |
Stock compensation |
|
|
0.2 |
% |
|
|
0.0 |
% |
|
|
2.0 |
% |
Permanent adjustments |
|
|
(1.4 |
%) |
|
|
(1.3 |
%) |
|
|
(0.2 |
%) |
Deferred Adjustments |
|
|
1.2 |
% |
|
|
4.4 |
% |
|
|
(2.8 |
%) |
Other |
|
|
(1.4 |
%) |
|
|
1.7 |
% |
|
|
0.1 |
% |
Effective Tax Rate |
|
|
(0.8 |
%) |
|
|
0.2 |
% |
|
|
5.3 |
% |
Tax effects of temporary differences can give rise to significant portions of deferred tax assets and deferred tax liabilities. The components of deferred income tax assets and liabilities are as follows.
Tax Effects of Temporary Differences |
|
As of December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Attributes |
|
|
|
|
|
|
||
Deferred tax asset |
|
|
|
|
|
|
||
Federal NOLs |
|
$ |
46,547 |
|
|
$ |
42,166 |
|
State NOLs |
|
|
12,400 |
|
|
|
10,518 |
|
Deferred revenue |
|
|
11,217 |
|
|
|
14,551 |
|
Capitalized R&D |
|
|
12,138 |
|
|
|
9,857 |
|
Other deferred tax assets |
|
|
9,138 |
|
|
|
7,968 |
|
Total deferred tax assets |
|
|
91,440 |
|
|
|
85,060 |
|
|
|
|
|
|
|
|
||
Less: Valuation allowance |
|
|
(80,612 |
) |
|
|
(71,490 |
) |
Total net deferred tax asset |
|
$ |
10,828 |
|
|
$ |
13,570 |
|
|
|
|
|
|
|
|
||
IRC 481(a) Adjustment |
|
|
(603 |
) |
|
|
(714 |
) |
Deferred costs of revenue |
|
|
(2,987 |
) |
|
|
(5,733 |
) |
Intangibles |
|
|
(5,308 |
) |
|
|
(6,208 |
) |
Other deferred tax liabilities |
|
|
(2,027 |
) |
|
|
(971 |
) |
Total deferred tax liabilities |
|
|
(10,925 |
) |
|
|
(13,626 |
) |
Net deferred tax liability |
|
$ |
(97 |
) |
|
$ |
(56 |
) |
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. As a result of historical cumulative losses, Management determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net federal and state deferred taxes in future periods. Therefore, a valuation allowance equal to the amount of the net federal and state deferred tax assets was provided at December 31, 2024 and 2023. The net valuation allowance increased by $9,122 from $71,490 to $80,612 in 2024.
As of December 31, 2024, the Company has gross net operating losses of $222,864 and $215,389 for federal and state income tax return purposes, respectively. Federal net operating losses can be carried forward indefinitely, while State NOLs will expire between 2032 and 2044. The Company also has $145 of R&D credits available that expire in 2039.
The Tax Reform Act of 1986 (the "Act") provides for a limitation of the annual use of the net operating loss carryforwards following certain ownership changes (as defined by the Act and codified under IRC 382) that could limit the company's ability to utilize these carryforwards. The Company has conducted an analysis under Section 382 of the Code to determine whether there would be any limitation on our ability to utilize our tax attributes. We have not experienced any limitations on the ability to use these tax attributes as the result of our analysis. We continue to analyze any shifts in ownership which may limit our ability to use these tax attributes in the future.
The income tax expense on the Consolidated Statement of Operations and Comprehensive Loss is primarily related to state minimum and franchise taxes. We have established a full valuation allowance for net deferred U.S. federal and state tax assets, including net operating loss carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized in future periods.
The Company files income tax returns in the U.S. federal and various state jurisdictions, as well as in Croatia and India. The Company is subject to U.S. federal and state income tax examinations by authorities for all tax years beginning in 2018, due to the accumulated net operating losses that are carried forward. Similarly, SightPlan is subject to U.S. federal and state income tax examination by authorities for all tax years beginning in 2012. The Company is subject to Croatian income tax examinations for all tax years beginning in 2019. The Company is subject to Indian income tax examinations for all tax years beginning in 2022.
The Company evaluates uncertain tax positions which requires significant judgments. The Company believes that it has established an adequate allowance for its uncertain tax positions, although it can provide no assurance that the final outcome of these matters will not be materially different. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. A summary of changes in the Company's gross unrecognized tax benefits for the years ended December 31, 2024 and 2023 is as follows (in thousands):
|
|
As of December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Unrecognized tax benefits - January 1 |
|
$ |
3,817 |
|
|
$ |
23,252 |
|
Gross increases - tax positions in prior period |
|
|
- |
|
|
|
- |
|
Gross decreases - tax positions in prior period |
|
|
(2,605 |
) |
|
|
(21,650 |
) |
Gross increases - tax positions in current period |
|
|
- |
|
|
|
2,215 |
|
Settlement |
|
|
- |
|
|
|
- |
|
Lapse of statute of limitations |
|
|
- |
|
|
|
- |
|
Unrecognized tax benefits - December 31 |
|
$ |
1,212 |
|
|
$ |
3,817 |
|
Unrecognized tax benefits - December 31 (tax-effected) |
|
$ |
339 |
|
|
$ |
1,172 |
|
The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefit as a component of income tax expense. The Company has not accrued penalties and interest as of December 31, 2024.
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About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.