Income Taxes

12 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The domestic and foreign components of income before provision for income taxes are as follows (in thousands):

	Year Ended June 30,
	2023		2022		2021
Domestic	$	447,975	$	421,942	$	471,711
Foreign	35,664		32,630		27,904
Income before income taxes	$	483,639	$	454,572	$	499,615

The components of income tax expense are as follows (in thousands):

	Year Ended June 30,
	2023		2022		2021
Current:
Federal	$	184,040	$	66,956	$	(94,143)
State and local	49,824		1,372		19,958
Foreign	11,053		9,880		7,384
Total current	244,917		78,208		(66,801)
Deferred:
Federal	(109,894)		(12,884)		109,157
State and local	(36,717)		22,140		185
Foreign	598		314		(369)
Total deferred	(146,013)		9,570		108,973
Total income tax expense	$	98,904	$	87,778	$	42,172

Income tax expense differs from the amounts computed by applying the U.S. federal statutory income tax rate of 21.0% as a result of the following (in thousands):

	Year Ended June 30,
	2023			2022			2021
Expected tax expense computed at federal statutory rate	$	101,564		$	95,460		$	104,919
State and local taxes, net of federal benefit	15,900			21,295			21,252
Remeasurement of current year NOL	—			(1,124)			(56,192)
R&D tax credit, net	(14,205)			(15,708)			(18,173)
Stock-based compensation	(930)			(3,981)			(5,525)
Nonincludible and nondeductible items, net	1,105			1,588			(2,269)
Remeasurement of deferred taxes	(5,546)			(5,629)			—
Other	1,016			(4,123)			(1,840)
Total income tax expense	$	98,904		$	87,778		$	42,172
Effective income tax rate	20.4		%	19.3		%	8.4		%

The effective tax rate for fiscal 2023 was favorably impacted by research and development tax credits and the remeasurement of state deferred taxes.

The effective tax rate for fiscal 2022 was favorably impacted primarily by federal research tax credits and the remeasurement of state deferred taxes.

The effective tax rate for fiscal 2021 was favorably impacted primarily by the Company’s method of accounting changes that resulted in a carryback of a federal income NOL and related income tax benefit as well as federal research tax credits.

The tax effects of temporary differences that give rise to deferred taxes are presented below (in thousands):

	June 30,
	2023		2022
Deferred tax assets:
Operating lease liabilities	$	102,679	$	99,997
Reserves and accruals	27,881		46,513
Capitalized research and development	191,872		—
Credits and net operating loss carryovers	4,284		6,647
Deferred compensation and post-retirement obligations	34,477		31,537
Stock-based compensation	11,032		11,907
Total deferred tax assets	372,225		196,601
Deferred tax liabilities:
Goodwill and other intangible assets	(331,845)		(318,150)
Property, plant and equipment	(31,068)		(102,940)
Operating lease right-of-use assets	(78,670)		(80,551)
Deferred revenue	(26,543)		(34,850)
Prepaid expenses	(11,177)		(11,162)
Interest rate swaps	(10,943)		(4,954)
Other	(2,524)		(835)
Total deferred tax liabilities	(492,770)		(553,442)
Net deferred tax liability	$	(120,545)	$	(356,841)

During fiscal year 2023, a provision of the TCJA went into effect which eliminated the option to deduct domestic research and development costs in the year incurred and instead requires taxpayers to capitalize and amortize such costs over five years. This provision decreased fiscal year 2023 cash flows from operations by $95.0 million and increased net deferred tax assets by a similar amount. Although it is possible that Congress amends this provision, potentially with retroactive effect, we have no assurance that Congress will take any action with respect to this provision. The future impact of this provision will depend on if and when this provision is deferred, modified, or repealed by Congress, including if retroactively, any guidance issued by the Treasury Department regarding the identification of appropriate costs for capitalization, and the amount of future research and development expenses paid or incurred (among other factors).

The deferred tax assets and liabilities were remeasured in fiscal 2022 due to a reduction in the blended state effective tax rate.

The Company is subject to income taxes in the U.S. and various state and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require the application of significant judgment. The Company is currently under examination by the Internal Revenue Service for fiscal 2017 through 2021 and one state jurisdiction for fiscal 2019 and 2020. Based on the current IRS audit status and expected conclusion timing, approximately $75.2 million of federal income tax receivables have been classified as long term as of June 30, 2023. The Company does not expect the resolution of these examinations to have a material impact on its results of operations, financial condition or cash flows.

U.S. income taxes have not been provided for undistributed earnings of foreign subsidiaries that have been permanently reinvested outside the United States. As of June 30, 2023, the estimated deferred tax liability associated with these undistributed earnings is approximately $2.8 million.

Changes in the Company’s liability for unrecognized tax benefits is shown in the table below (in thousands):

	Year Ended June 30,
	2023		2022		2021
Beginning of year	$	42,810	$	31,505	$	8,826
Additions based on prior year tax positions	3,829		8,221		20,025
Additions based on current year tax positions	107,221		8,313		5,702
Settlement with taxing authorities	—		(5,229)		(3,048)
End of year	$	153,860	$	42,810	$	31,505
Unrecognized tax benefits that, if recognized, would affect the effective tax rate	$	56,944	$	42,810	$	31,505

The Company’s total liability for unrecognized tax benefits as of June 30, 2023, 2022 and 2021 was approximately $153.9 million, $42.8 million and $31.5 million, respectively. During fiscal 2023, the Company recognized an increase in reserves related to the required capitalization of research and development expenses, which became effective in fiscal 2023, and current and prior year research and development tax credits. Included in the fiscal 2023 unrecognized tax benefits is $96.9 million related to the required capitalization of research and development expenses.

The Company recognizes net interest and penalties as a component of income tax expense. Over the next 12 months, the Company does not expect a significant increase or decrease in the unrecognized tax benefits recorded at June 30, 2023. As of June 30, 2023, the entire balance of unrecognized tax benefits is included in deferred taxes and other long-term liabilities.