Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income (loss) from continuing operations before income taxes consisted of the following:
Year Ended December 31,
2022 2021 2020
United States
 $ (7,586) $ (245) $ 8,360 
Foreign
 (173,028) (4,994) 13,295 
Income (loss) from continuing operations before income taxes
 $ (180,614) $ (5,239) $ 21,655 
The components of the provision (benefit) for income taxes consisted of the following:
Year Ended December 31,
2022 2021 2020
Current:
Federal
 $ 1,059  $ 2,631  $ 2,108 
State
 354  733  310 
Foreign
 (1,208) 7,828  7,099 
Total
 205  11,192  9,517 
Deferred:
Federal
 (2,325) (579) 117 
State
 (126) (42) (17)
Foreign
 (1,671) (9,719) (2,767)
Total (4,122) (10,340) (2,667)
Income tax expense (benefit)
 $ (3,917) $ 852  $ 6,850 
The provision (benefit) for income taxes differs from the tax computed using the statutory U.S. federal income tax rate of 21% as a result of the following items:
Year Ended December 31,
2022 2021 2020
Income tax expense (benefit) at U.S. statutory rate
 $ (37,929) $ (1,100) $ 4,548 
State income taxes, net of federal income tax benefit
 250  546  246 
Permanent differences
 266  1,121  467 
Foreign tax rate differential
 (14,900) (886) 1,536 
Transaction costs
 —  (477) — 
Equity-based compensation
 860  1,689  — 
Goodwill impairment
 51,990  —  — 
Change in tax basis of Culture Kings’ inventory and intangibles
 (2,233) —  — 
Intra-entity transfer of certain intellectual property rights
 (1,030) —  — 
Other
 (1,191) (41) 53 
Income tax expense (benefit)
 $ (3,917) $ 852  $ 6,850 
The foreign tax rate differential relates to differences between the income tax rates in effect in the foreign countries in which the Company operates, in particular Australia where the corporate tax rate is 30%.
The components of net deferred tax assets (liabilities) were as follows:
Year Ended December 31,
2022 2021
Deferred tax assets:
Transaction costs $ 1,327  $ 2,129 
Property and equipment
 1,217  439 
Accruals and reserves 3,706  4,397 
Lease liabilities 10,949  7,005 
Inventory
 273  1,653 
Foreign exchange gains / losses 150  92 
Loss carryforwards
 6,874  — 
Subtotal 24,496  15,715 
Less: Valuation allowance (4,755) — 
Total deferred tax assets 19,741  15,715 
Deferred tax liabilities:
Intangible assets (8,372) (11,557)
Right-of-use assets
 (10,668) (7,041)
Other 85  (37)
Total deferred tax liabilities (18,955) (18,635)
Net deferred assets (liabilities)
 $ 786  $ (2,920)
As of December 31, 2022, the Company had a $7.1 million Australian net operating loss carryforward and a $15.8 million Australian capital loss carryforward on the intra-entity transfer of certain intellectual property rights from Australia to the U.S. As of December 31, 2021, the Company had no net operating loss or capital loss carryforwards. The net operating loss and capital loss carryforwards have no expiration. The Company recorded a full valuation allowance on the capital loss carryforward as of December 31, 2022.
The Company had gross deferred tax assets of $24.5 million and $15.7 million and gross deferred tax liabilities of $19.0 million and $18.6 million at December 31, 2022 and 2021, respectively. Management has determined the gross deferred tax assets are more likely than not realizable, except for the capital loss carryforward.
The Company has not provided deferred taxes on unremitted earnings attributable to foreign subsidiaries that have been considered permanently reinvested. As of December 31, 2022, there are no unremitted earnings from these operations.
As of December 31, 2022 and 2021, the Company had no uncertain tax positions.
The Company is subject to taxation in the United States, Cayman Islands and Australia. For U.S. federal income tax purposes, 2019 and later tax years remain open for examination by the tax authorities under the normal three-year statute of limitations. For major U.S. states, 2018 and later tax years remain open for examination by the tax authorities under a four-year statute of limitations. For Australia, 2018 and subsequent tax years remain subject to examination.
Tax Contingencies
The Company is subject to income taxes in the United States and Australia. Significant judgment is required in evaluating the Company’s tax positions and determining the provision for income taxes. During the ordinary course of business, the Company considers tax positions for which the ultimate tax determination is uncertain for the purpose of determining whether a reserve is required, despite the Company’s belief that the tax positions are fully supportable. To date the Company has not established a reserve provision because the Company believes that all tax positions are highly certain.