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Income Taxes

12 Months Ended

Oct. 31, 2020

17.Income Taxes

The provision for income taxes for the years ended October 31, 2020, 2019 and 2018 consists of the following:

(in thousands)		2020		2019		2018
Current:
Federal	$	38,798	$	100,812	$	104,510
State		9,756		29,938		26,942
Deferred:
Federal		28,488		3,222		24,894
State		6,858		1,280		357
Total	$	83,900	$	135,252	$	156,703

On December 22, 2017, the Tax Cuts and Jobs Act (2017 Tax Act) was signed into law in the U.S. Among other significant changes, the 2017 Tax Act reduced the statutory federal income tax rate for U.S. corporate taxpayers from a maximum of 35 percent to 21 percent and required the deemed repatriation of foreign earnings not previously subject to U.S. taxation.

The following table reconciles the U.S. statutory federal income tax rate to the Company’s effective tax rate for the years ended October 31, 2020, 2019 and 2018:

	2020		2019		2018
Statutory U.S. federal income tax rate⁽¹⁾	21.0	%	21.0	%	23.3	%
State income tax, net of federal income tax benefits	5.0		4.7		4.4
Net income attributable to non-controlling and other beneficial
Interests	0.3		(1.2)		(0.7)
Non-recurring impact of U.S. tax reform	-		-		4.4
Stock-based compensation	(0.1)		0.2		0.4
Net excess tax benefits from stock-based compensation plans⁽²⁾	(2.7)		(1.0)		(3.2)
Other items	1.6		0.5		0.2
Effective income tax rate	25.1	%	24.2	%	28.8	%

The Company's statutory U.S. federal income tax rate for the year ended October 31, 2018 was a blend of 35 percent and 21 percent based on the number of days in the Company's fiscal year before and after the January 1, 2018 effective date of the reduction in the federal corporate income tax rate pursuant to the 2017 Tax Act.Reflects the impact of the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which was adopted by the Company as of November 1, 2017 and requires additional paid-in-capital to be recognized as income tax benefit or income tax expense in the period of vesting or settlement.

The Company’s income tax provision for the year ended October 31, 2020 included $5.7 million of charges associated with certain provisions of the 2017 Tax Act taking effect for the Company in fiscal 2019, relating principally to limitations on the deductibility of executive compensation. The Company’s income tax provision was reduced by net excess tax benefits of $9.0 million related to the exercise of employee stock options and vesting of restricted stock awards during the period. Additionally, the income tax provision increased by $1.3 million related to net income attributable to redeemable non-controlling interests and other beneficial interests, which is not taxable to the Company.

The Company’s income tax provision for the year ended October 31, 2019 included $3.2 million of charges associated with certain provisions of the 2017 Tax Act taking effect for the Company in fiscal 2019, relating principally to limitations on the deductibility of executive compensation. The Company’s income tax provision was reduced by net excess tax benefits of $5.4 million related to the exercise of employee stock options and vesting of restricted stock awards during the period, and $8.4 million related to the net income attributable to redeemable non-controlling interests and other beneficial interests, which is not taxable to the Company.

The Company’s income tax provision for the year ended October 31, 2018 included a non-recurring charge of $24.0 million to reflect the enactment of the 2017 Tax Act. This non-recurring charge was based on guidance issued by the Internal Revenue Service (IRS) and the Company’s interpretation of certain provisions of the tax law changes. The charge consists of $21.2 million from the revaluation of the Company’s deferred tax assets and liabilities and $2.8 million for the deemed repatriation of foreign-sourced net earnings not previously subject to U.S. taxation. The Company’s income tax provision was reduced by net excess tax benefits of $17.5 million related to the exercise of stock options and vesting of restricted stock during the period, and $4.4 million related to the net income attributable to redeemable non-controlling interests and other beneficial interests, which is not taxable to the Company.

As of October 31, 2020, the Company considers the undistributed earnings of certain foreign subsidiaries to be permanently reinvested, and not available to fund U.S. operations. As of that date, the Company had approximately $11.6 million of undistributed foreign earnings, primarily from operations in the U.K., which are not available to fund U.S. operations or to distribute to shareholders unless repatriated. In consideration of the treatment of taxable distributions under the 2017 Tax Act, the impact of Global Intangible Low Taxed Income on the Company’s future foreign earnings and lack of withholding tax imposed by certain foreign governments, any future tax liability with respect to repatriating these undistributed earnings is immaterial.

As of October 31, 2019, the Company had approximately $8.5 million of undistributed earnings from its Canadian subsidiary. As of April 2019, the Company no longer considered the undistributed earnings of its Canadian subsidiary to be indefinitely reinvested in foreign operations. This change in assertion allowed the Canadian subsidiary to declare and pay a $65.2 million dividend in April 2019 to its U.S. parent company, which is a wholly-owned subsidiary of the Company. The payment of this dividend had no financial statement impact, as all previously undistributed earnings from the Canadian subsidiary were subject to taxation in fiscal 2018 due to the 2017 Tax Act. The dividend did, however, result in a $0.5 million reduction in our fiscal 2019 tax expense due to a realized foreign exchange loss.

The reported amount of deferred income taxes included in the Company’s Consolidated Balance Sheet includes a deferred tax asset for the excess of the underlying tax basis of the Company’s 49% equity-method investment in Hexavest over its carrying amount (outside basis difference). As discussed further in Note 4, during fiscal 2020, the Company recognized an other-than-temporary impairment charge to write down the carrying amount of its investment in Hexavest to fair value. The other-than-temporary impairment charge did not affect the Company’s tax basis in this investment. The Company determined that the entire gross deferred tax asset attributable to the outside basis difference in the Company’s investment in Hexavest of $18.2 million as of October 31,2020 (of which $16.6 million is attributable to the recognition of the other-than-temporary impairment charge) is more likely than not unrealizable and therefore recorded a valuation allowance for the entire amount. No other valuation allowances have been recorded for deferred tax assets as of October 31, 2020.

Deferred income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts and tax basis of the Company’s assets and liabilities. The significant components of deferred income taxes were as follows:

(in thousands)			2020		2019
Deferred tax assets:
	Lease liability	$	74,831	$	-
	Stock-based compensation		23,926		45,505
	Investment basis in partnerships		-		25,245
	Deferred rent		-		8,017
	Differences between book and tax bases of investments		33,922		7,893
	Differences between book and tax bases of goodwill and intangibles		9,832		-
	Compensation and benefit expense		5,741		5,259
	Federal benefit of unrecognized state tax benefits		352		282
	Other		-		193
	Gross deferred tax assets		148,604		92,394
	Valuation allowance		(18,166)		-
Total deferred tax asset		$	130,438	$	92,394

Deferred tax liabilities:
	ROU Asset	$	(63,073)	$	-
	Deferred sales commissions		(15,510)		(14,189)
	Differences between book and tax bases of property		(13,292)		(7,270)
	Differences between book and tax bases of goodwill and intangibles		-		(8,218)
	Investment basis in partnerships		(4,659)		-
	Unrealized gains on derivative instruments		-		(56)
	Other		(481)		-
Total deferred tax liability		$	(97,015)	$	(29,733)
Net deferred tax asset		$	33,423	$	62,661

Other than as discussed above, no valuation allowances have been recorded for deferred tax assets as of October 31, 2020, reflecting management’s belief that the deferred tax assets will be utilized. As of October 31, 2019, no valuation allowance was recorded for deferred tax assets.

The changes in gross unrecognized tax benefits, excluding interest and penalties, for the years ended October 31, 2020, 2019 and 2018 were as follows:

(in thousands)			2020		2019		2018
Beginning balance		$	743	$	695	$	1,029
	Additions for tax positions of prior years		393		-		7
	Additions based on tax positions related to current year		106		74		93
	Reductions for tax positions of prior years		-		(26)		-
	Decrease - Settlements		(394)		-		-
	Lapse of statute of limitations		-		-		(434)
Ending balance		$	848	$	743	$	695

Unrecognized tax benefits, if recognized, would reduce the income tax provision by $0.8 million, $0.7 million and $0.7 million, respectively, for the years ended October 31, 2020, 2019 and 2018.

The Company recognized $0.3 million, $0.1 million and $0.1 million, respectively, in interest and penalties in its income tax provision for the years ended October 31, 2020, 2019 and 2018, respectively. Accrued interest and penalties, which are included as a component of unrecognized tax benefits, totaled $1.1 million and $0.8 million at October 31, 2020 and 2019, respectively.

The Company believes that it is reasonably possible that approximately $0.8 million of its currently remaining unrecognized tax benefits, each of which are individually insignificant, may be recognized within the next 12 months as a result of a lapse of the statute of limitations and settlements with state taxing authorities.

The Company is generally no longer subject to income tax examinations by U.S. federal, state, local or non-U.S. taxing authorities for fiscal years prior to fiscal 2017.