Income Taxes

3 Months Ended

Mar. 31, 2020

Income Taxes The Company recorded income tax expense of $4.6 million on consolidated loss before income taxes of $6.0 million during the three months ended March 31, 2020 and income tax expense of $3.7 million on consolidated income before income taxes of $53.1 million during the three months ended March 31, 2019. The income tax expense for the three months ended March 31, 2020 was primarily attributable to the recording of valuation allowances in certain foreign jurisdictions that incurred pre-tax losses. The income tax expense for the three months ended March 31, 2019 included a tax benefit of approximately $9.1 million related to a tax accounting method change for revenue reporting approved by the Internal Revenue Service during the period.

The effective tax rates for the respective periods are shown below:


	Three Months Ended March 31,
	2020		2019
Federal provision	21.0	%	21.0	%
State provision	(15.6)	%	2.5	%
Foreign income taxed at different rates⁽¹⁾	(3.2)	%	(0.9)	%
Change in valuation allowance⁽²⁾	(66.5)	%	1.9	%
Change in tax accounting method⁽³⁾	—	%	(17.1)	%
Foreign currency remeasurement	(6.4)	%	0.2	%
Permanent items⁽⁴⁾	(1.7)	%	0.1	%
Other	(3.3)	%	(0.8)	%
Effective tax rate	(75.7)	%	6.9	%

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(1)Relates primarily to the lower tax rates on the income or loss attributable to international operations.

(2)Change in valuation allowance during 2020, recognized in the period under the discrete method, is attributable to losses incurred at certain foreign subsidiaries with cumulative operating losses for tax purposes.

(3)In 2019, includes tax benefit resulting from tax accounting method change.

(4)Represents a provision for nondeductible expenses

The Company utilized the discrete effective tax rate method (“discrete method”) for recording income taxes for the three months ended March 31, 2020. The Company believes the use of the discrete method is more appropriate than the application of the estimated annual effective tax rate (“AETR”) method due to uncertainty in estimating annual pre-tax earnings primarily due to the ongoing COVID-19 pandemic. The Company will re-evaluate the use of the discrete method each quarter until it is deemed appropriate to return to the AETR method.

The Company’s subsidiary in Costa Rica is operating under a 100% tax holiday through December 31, 2026. The impact of the tax holiday in Costa Rica for the three months ended March 31, 2020 and 2019, was immaterial.

The Company had gross unrecognized tax benefits, inclusive of penalties and interest, of $8.2 million as of March 31, 2020. These unrecognized tax benefits, if recognized, would result in a net tax benefit of $7.6 million as of March 31, 2020. There was no material change in gross unrecognized tax benefits from December 31, 2019.

The Company has not provided for applicable income or withholding taxes on the undistributed earnings from continuing operations for certain of its subsidiaries operating outside of the United States. Undistributed net income of these subsidiaries as of March 31, 2020 was approximately $117.1 million. Such undistributed earnings are considered permanently reinvested. The Company does not provide deferred taxes on translation adjustments on unremitted earnings under the indefinite reversal exemption. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practical due to the complexities of a hypothetical calculation. Subsidiaries operating outside of the United States for which the Company does not consider under the indefinite reversal exemption have no material undistributed earnings or outside basis differences and therefore no U.S. taxes have been provided.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in response to the COVID-19 pandemic. The CARES Act contains several corporate income tax provisions, including modifications to the limitation on business interest expense and net operating loss regulations, and provides for a payment delay of employer payroll taxes and income taxes. The CARES Act did not have a material impact on the Company’s effective tax rate or income tax provision for the three months ended March 31, 2020.