Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | INCOME TAXES The components of income tax expense were as follows:
A reconciliation of the provision for income tax to the amount computed by applying the statutory federal income tax rate to income from continuing operations before income taxes for each of the three years ended March 31 is as follows:
The Company reported a change in its method of accounting for the capitalization of costs associated with property, plant and equipment on its 2020 U.S. federal tax return that was filed in the fourth quarter of fiscal 2021, and intends to file a permissible subsequent change in method of accounting (also related to property, plant and equipment) in its 2021 U.S. federal tax return to be filed in fiscal 2022. These method changes resulted in an increase in tax on the fiscal 2020 U.S. federal tax return over the prior year estimate as well as the generation of a net operating loss for fiscal 2021. As a result of a provision in the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), taxpayers are allowed to carry net operating losses generated in fiscal 2019, 2020 and 2021 back to the five prior tax years (fiscal years 2016 - 2020). Accordingly, the Company has recorded a long-term income tax receivable of $273.4 million related to the U.S. federal carry back of the fiscal 2021 loss. Additionally, the Company has recorded a $238.9 million U.S. federal deferred tax liability as a result of the fiscal 2020 change in method of accounting. This deferred tax liability is reflected within the property and equipment deferred in the Company's significant components of deferred income tax assets and liabilities. The corporate tax rate for the Company was 35% during fiscal 2016 and 2017, 31.5% during fiscal 2018, and 21% since fiscal 2019. As the Company intends to carry the U.S. federal net operating loss generated in fiscal 2021 back to fiscal 2016 and subsequent years, this resulted in an income tax benefit of $76.8 million related to the re-measurement of the current year loss in the applicable fiscal years. For state tax purposes, an incremental net operating loss carryforward of $89.6 million that was generated is expected to be utilized in fiscal 2022 and future years. Including the impact of these state carryforwards, this transaction resulted in an incremental state deferred tax asset of $11.8 million. The Company has both income tax receivables and income tax payable on its consolidated balance sheet as follows:
The current income tax receivable as of March 31, 2021 represents estimated payments made in fiscal 2021 and prior periods that will be applied to the Company’s fiscal 2022 U.S. federal and state tax returns. This amount is classified as prepaid expenses and other current assets on the consolidated balance sheet. The current income tax payable as of March 31, 2021 represents current liabilities associated with the Company’s amended fiscal 2020 U.S. state returns that the Company intends to file in fiscal 2022. This amount is classified as other current liabilities on the consolidated balance sheet. The long-term income tax receivable as of March 31, 2021 represents the carryback claim for the fiscal 2021 net operating loss and the amended U.S. federal return refund claims for research and development tax credits. This amount is classified as other long-term assets on the consolidated balance sheet. The significant components of the Company’s deferred income tax assets and liabilities were as follows:
Deferred tax balances arise from temporary differences between the carrying amount of assets and liabilities and their tax basis and are stated at the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized. In determining if the Company's deferred tax assets are realizable, management considers all positive and negative evidence, including the history of generating financial reporting earnings, future reversals of existing taxable temporary differences, projected future taxable income, as well as any tax planning strategies. As discussed above, the increase in the property and equipment deferred tax liability relates to the Company's fiscal 2020 change in method of accounting and represents income to be recognized in fiscal 2022 and 2023. As of March 31, 2021, the Company has available federal, state, and foreign net operating loss ("NOL carryforwards") of $2.0 million, $91.9 million and $4.6 million, respectively, that may be applied against future taxable income. The federal net operating losses are primarily attributable to an acquisition and will begin to expire in fiscal 2037. The state net operating losses are primarily attributable to current year losses, with varying expiration or no expiration dates. For state tax purposes, the fiscal 2021 loss generally cannot be carried back to prior tax years and as such, a net operating loss carryforward was recorded rather than an income tax receivable. We recorded a partial valuation allowance against those federal, state and foreign net operating losses that we believe will expire prior to utilization. Uncertain Tax Positions The Company maintains reserves for uncertain tax positions related to unrecognized income tax benefits. These reserves involve considerable judgment and estimation and are evaluated by management based on the best information available including changes in tax laws and other information. As of March 31, 2021, 2020, and 2019, the Company has recorded $62.9 million, $56.1 million, and $11.5 million, respectively, of reserves for uncertain tax positions which includes potential tax benefits of $62.7 million, $55.2 million, and $11.1 million, respectively, that, when recognized, impact the effective tax rate. As of March 31, 2021, $11.1 million of the reserve is reflected as a reduction to deferred taxes and the remaining balance is recorded as a component of other long-term liabilities in the consolidated balance sheet. As of March 31, 2020, the entire balance is reflected as a component of other long-term liabilities, having been reclassified from income tax reserves on the prior year consolidated balance sheet. A reconciliation of the beginning and ending amount of potential tax benefits for the periods presented is as follows:
During fiscal 2021, the Company recognized an increase in reserves for uncertain tax positions of approximately $5.0 million related to an increase in research and development tax credits available for fiscal years 2016 to 2020 and $12.8 million for fiscal 2021. This was partially offset by the release of $10.3 million in reserves for uncertain tax positions related to the expiration of the statute of limitations of acquired uncertain tax position liabilities. The Company recognized accrued interest and penalties of $0.3 million, $0.5 million and $0.2 million for fiscal 2021, 2020, and 2019, respectively, related to the reserves for uncertain tax positions in the income tax provision. Included in the total reserve for uncertain tax positions are accrued penalties and interest of approximately $1.2 million, $0.9 million and $0.4 million at March 31, 2021, 2020, and 2019, respectively. The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of March 31, 2021, the Company's tax years ended March 31, 2016 and forward are open and subject to examination by the federal tax authorities. The other jurisdictions' currently open or under examination are not considered to be material. The Company is currently contesting tax assessments from the District of Columbia Office of Tax and Revenue for fiscal years 2013 through 2015 at various stages of applicable administrative and judicial processes, with a combined amount at issue of approximately $11.7 million, net of associated federal tax benefits as of March 31, 2021. The Company has taken similar tax positions with respect to subsequent fiscal years, with approximately $38.6 million, net of federal tax benefits, of total potential future tax expense that would arise from an adverse final resolution. As of March 31, 2021, the Company does not maintain reserves for any uncertain tax positions related to the contested tax benefits or the similar tax positions taken in the subsequent fiscal years. Given the recoverable nature of the state tax expense, the Company does not believe that the resolution of these matters will have a material adverse effect on its results of operations, cash flows or financial condition.
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