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Provision for Income Taxes
9 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
PROVISION FOR INCOME TAXES PROVISION FOR INCOME TAXES
For the period ended December 31, 2022, the Company computes its quarterly income tax provision under the effective tax rate method by applying an estimated anticipated annual effective rate to our year-to-date income, except for significant and unusual or extraordinary transactions. Losses from jurisdictions for which no benefit can be recognized are excluded from the overall computations of the estimated annual effective tax rate and a separate estimated annual effective tax rate is computed and applied to ordinary income or loss in the loss jurisdiction. Income taxes for any significant and unusual or extraordinary transactions are computed and recorded in the period in which the specific transaction occurs. Due to the recent transition to a fiscal year ended March 31, the income taxes for the comparable period ended December 31, 2021, as reported in the Company's Annual Report on Form 10-K for Fiscal 2021, are accounted for under the asset and liability method wherein deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled.
The effective rates for income taxes were 13.4% and (6.6)% for the three months ended December 31, 2022 and 2021, respectively. The change in the Company’s effective tax rate was primarily driven by a greater proportion of U.S. federal valuation allowance release benefit in the prior period and the income tax effect of the method for accounting for income taxes, the proportion of earnings subject to tax in the United States as compared to foreign jurisdictions, and one-time discrete items in each period.
The effective rates for income taxes were 17.7% and 7.3% for the nine months ended December 31, 2022 and 2021, respectively. The change in the Company’s effective tax rate was primarily driven by a greater proportion of U.S. federal valuation allowance release benefit in the prior period and the income tax effect of the method for accounting for income taxes in each period.
On August 16, 2022, the Inflation Reduction Act (the "Act") was enacted and signed into law in the United States. The Act contains a number of revisions to the Internal Revenue Code, including a 15% corporate minimum tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. The Company does not expect these tax provisions to have a material impact to the consolidated financial statements.
Valuation Allowance
The Company evaluates on a quarterly basis whether the deferred tax assets are realizable which requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company's deferred tax assets, which increase income tax expense in the period when such a determination is made.
As noted in the Company's Annual Report on Form 10-K for Fiscal 2021, a significant portion of the Company’s deferred tax assets relate to United States federal and state taxing jurisdictions. Realization of these deferred tax assets is dependent on future U.S. pre-tax earnings. As of December 31, 2022, the Company continues to believe that the weight of the negative evidence outweighs the positive evidence regarding the realization of the Company’s U.S. federal and the majority of the U.S. state deferred tax assets. Accordingly, the Company continues to maintain a valuation allowance on these deferred tax assets. Furthermore, consistent with prior periods, valuation allowances have also been recorded against a portion of foreign deferred tax assets in jurisdictions where the weight of negative evidence outweighs the positive evidence regarding the realization of deferred tax assets.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. The Company's current forecast for the United States indicates that it is reasonably possible that additional deferred taxes could be realizable during the current fiscal year-end based on near term trend towards three-year cumulative taxable earnings. The actualization of these forecasted results may potentially outweigh the negative evidence, resulting in a reversal of all or a portion of previously recorded federal valuation allowances in the United States. The release of valuation allowances would result in a benefit to income tax expense in the period the release is recorded, which could have a material impact on net income. The timing and amount of the potential valuation allowance release are subject to significant management judgment, as well as prospective pre-tax earnings in the United States. The Company will continue to evaluate its ability to realize its net deferred tax assets on a quarterly basis.