|9 Months Ended|
Sep. 30, 2021
9. Income Tax
The Company’s quarterly income tax provision is calculated using an estimated annual effective income tax rate ("ETR") based on actual historical information and forward-looking estimates. The Company’s estimated annual ETR may fluctuate due to changes in forecasted annual pre-tax income, changes in the jurisdictional mix of forecasted pre-tax income, and changes to actual or forecasted permanent book to tax differences (e.g., non-deductible expenses). In addition, the Company’s ETR for a particular reporting period may fluctuate as the result of changes to the valuation allowance for net deferred tax assets, the impact of anticipated tax settlements with federal, state, or foreign tax authorities, or the impact of tax law changes. The Company identifies items that are unusual and non-recurring in nature and treat these as discrete events. The tax effect of these discrete events is booked entirely in the quarter in which they occur.
During the three and nine months ended September 30, 2021, the Company recorded an income tax provision of $3.3 million and $8.4 million, respectively, resulting in an effective tax rate of 29.2% and 89.3%, which includes an annualized effective tax provision of $3.3 million and $2.7 million (representing an effective tax rate of 29.2% and 29.1%) and discrete items relating primarily to transaction costs and state tax refunds of $0 and $5.6 million (representing an effective tax rate of 0.0% and 60.2%), respectively. During the three and nine months ended September 30, 2020, the Company recorded an income tax benefit of $1.4 million and an income tax provision of $2.0 million, respectively, resulting in an effective tax rate of (31.1%) and 13.8%, respectively. These effective tax rates differ from the U.S. federal statutory rate primarily due to the effects of differing treatment of transaction costs between book and tax, foreign tax rate differences, U.S. tax on foreign operations, and U.S. state/local taxes.
The COVID-19 (as defined herein) pandemic has a global reach, and many countries are introducing measures that provide relief to taxpayers in a variety of ways. In March 2020, the U.S. government enacted tax legislation containing provisions to support businesses during the COVID-19 pandemic (the “CARES Act”), including deferment of the employer portion of certain payroll taxes, refundable payroll tax credits, and technical amendments to tax depreciation methods for qualified improvement property. The CARES Act did not have a material impact on the Company’s income tax provision for the three and nine months ended September 30, 2021.
A valuation allowance has been established against a non-material amount of certain net foreign deferred tax assets and US tax loss carryforward. All other net deferred tax assets have been determined to be more likely than not realizable.
The Company and its subsidiaries file income tax returns with the Internal Revenue Service (“IRS”) and various state and international jurisdictions. The Company’s Israeli subsidiary is under audit by the Israeli Tax Authority for the 2016-2018 tax years. This examination may lead to ordinary course adjustments or proposed adjustments to the Company’s taxes. Aside from this, the Company is not currently under audit in any other jurisdiction.
On August 31, 2021, the Company acquired all of the outstanding stock of Meetrics, a German corporation, in a sale treated as a non-taxable event at the corporate level. The Company has calculated a preliminary tax basis balance sheet and deferred tax impact of the acquisition. The Company has recorded a deferred tax liability of $2.9 million relating to varying tax and book basis differences of intangible assets and goodwill.
In addition, Meetrics maintains net operating loss carryforwards of approximately $5.0 million through December 31, 2020. Based on a preliminary review of all positive and negative evidence, it appears to not be more likely than not that Meetrics will be able to utilize these loss carryforwards. Therefore, a deferred tax asset of $1.5 million has been recorded, which is fully offset by a valuation allowance.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef