Income Taxes

12 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

14. Income Taxes

The provision for (benefit of) income taxes consist of the following components:

	Fiscal Year Ended March 31,
	2023			2022			2021
Current:
Federal taxes	$	13,857		$	1,090		$	6,562
State taxes		259			1,081			1,226
Foreign taxes		1,781			1,192			826
Total current taxes		15,897			3,363			8,614
Deferred:
Federal taxes	$	(9,562	)	$	43		$	(6,053	)
State taxes		311			(379	)		(2,068	)
Foreign taxes		312			551			(733	)
Total deferred taxes		(8,939	)		215			(8,854	)
Provision for (benefit of) income taxes	$	6,958		$	3,578		$	(240	)

The provision for (benefit of) income taxes differs from the amount computed at the federal statutory rate as follows:

	Fiscal Year Ended March 31,
	2023			2022			2021
Tax expense at United States federal statutory rate (1)	$	904		$	1,091		$	1,948
Items affecting federal income tax rate:
Impact of legal and audit settlements		3,339			—			(56	)
Impact of foreign withholding tax		2,811			—			—
Executive compensation limitation		2,575			2,068			775
Impact of net operating loss adjustment		1,814			(100	)		(220	)
State income taxes		1,473			950			572
Impact of foreign operations		311			356			(1,203	)
Compensation		66			1,059			865
Non-deductible expenses		—			(27	)		(258	)
Impact of deferred adjustments		(11	)		188			(31	)
Impact of amended returns		(122	)		163			(9	)
Impact of valuation allowance		(259	)		(882	)		563
Impact of uncertain tax positions		(366	)		1,620			278
Return to provision true-ups		(511	)		(152	)		(15	)
Research and development tax credits		(5,066	)		(2,756	)		(3,449	)
Provision for (benefit of) income taxes	$	6,958		$	3,578		$	(240	)

(1)Federal statutory rate was 21.0% for March 31, 2023, 2022 and 2021.

The net deferred tax assets and liabilities in the consolidated balance sheets consist of the following:

	March 31, 2023			March 31, 2022
Deferred tax assets:
Compensation and benefits	$	14,506		$	17,494
Capitalized software		14,226			(647	)
Deferred revenue		9,923			9,245
Research and development credit		7,297			7,165
Accrued legal settlement		4,035			—
Net operating losses		2,470			6,018
Operating lease liabilities		1,937			3,774
Foreign deferred taxes		1,444			1,755
Allowance for credit losses		1,383			1,658
Accounts receivable		47			511
Total deferred tax assets		57,268			46,973
Deferred tax liabilities:
Prepaid expense	$	(11,656	)	$	(10,895	)
Intangibles assets		(8,845	)		(8,703	)
Other		(1,254	)		(630	)
Operating right-of-use assets		(816	)		(1,713	)
Accelerated depreciation		(351	)		(640	)
Valuation allowance		(4,874	)		(5,133	)
Deferred tax assets, net	$	29,472		$	19,259

The deferred tax assets and liabilities have been shown net in the consolidated balance sheets as noncurrent.

As of March 31, 2023 and 2022, we had federal net operating loss (“NOL”) carryforwards of $5,709 and $10,801, respectively. The federal NOL carryforwards were inherited in connection with our acquisitions of HealthFusion in January 2016, Gennius in March 2015, Entrada in April 2017, EagleDream in August 2017, and Medfusion in December 2019. The NOL carryforwards expire in various amounts starting in fiscal 2030 for both federal and state tax purposes. As of March 31, 2023, we had state NOL carryforwards of approximately $1,272 (tax effected), related to the HealthFusion, Entrada, EagleDream, and Medfusion acquisitions. The utilization of the federal NOL carryforwards is subject to limitations under the rules regarding changes in stock ownership as determined by the Internal Revenue Code.

As of March 31, 2023 and 2022, the research and development tax credit carryforward available to offset future federal and state taxes was $8,450 and $8,155, respectively. The federal credits include credits inherited in connection with our acquisition of Medfusion in December 2019. The credits expire in various amounts starting in fiscal 2034.

We expect to receive the full benefit of the deferred tax assets recorded with the exception of certain foreign and state credits and state NOL carryforwards for which we have recorded a valuation allowance.

A one-time transition tax was recognized on our United States income tax on the deemed repatriated cumulative foreign earnings as a result of the Tax Reforms of the Tax Cut and Jobs Act’s (TCJA) during fiscal year March 31, 2018. The Company has historically intended and asserted a business practice of indefinite reinvestment of the earnings of its foreign subsidiaries. During the last quarter of fiscal year March 31, 2023 the foreign business operations influenced the Company’s reevaluation of its historic assertion of indefinite reinvestment. At March 31, 2023, the Company has a tax provision for United States state and/or foreign withholding taxes on approximately $24,729 of the offshore foreign earnings, a declared dividend and the initial recognition of a deferred tax liability resulting from the change in the indefinite reversal assertion. The Company will continue to assess its future assertion regarding its intent and ability to reinvest its foreign earnings.

The Taxation Laws (Amendment) Act, 2019 was enacted on December 12, 2019 to lower corporate tax rates in India. Beginning March 31, 2023, we opted to elect for the reduced tax rate. The election was not made for various factors for the year ended 2022.

Uncertain tax positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits, which is recorded within other noncurrent liabilities and deferred income taxes, net in our consolidated balance sheet, is as follows:

Balance as of March 31, 2020	$	4,192
Additions for prior year tax positions		220
Additions for current year tax positions		635
Reductions for prior year tax positions		(621	)
Balance as of March 31, 2021		4,426
Additions for prior year tax positions		1,184
Additions for current year tax positions		763
Reductions for prior year tax positions		(261	)
Balance as of March 31, 2022		6,112
Additions for prior year tax positions		311
Additions for current year tax positions		941
Reductions for prior year tax positions		(1,453	)
Balance as of March 31, 2023	$	5,911

During the year ended March 31, 2023, we recorded additional net receivables of $365 related to various federal, foreign, and state tax planning benefits recorded in the current year for current and prior year tax positions. If recognized, the total amount of unrecognized tax benefit that would decrease the income tax provision is $5,911.

Our practice is to recognize interest related to income tax matters as interest expense in the consolidated statements of net income and comprehensive income. We had approximately $461 and $286 of accrued interest related to income tax matters as of March 31, 2023 and 2022, respectively. We recognized interest expense of $174, interest expense of $199, and interest income of $85 in the years ended March 31, 2023, 2022 and 2021, respectively, related to income tax matters in the consolidated statements of net income and comprehensive income. No penalties related to income tax matters were accrued or recognized in our consolidated financial statements for all periods presented.

We are subject to taxation in federal, various state, India, and United Kingdom jurisdictions. We are no longer subject to United States federal income tax examinations or other foreign tax authorities for tax years before fiscal year ended 2019. With a few exceptions, we are no longer subject to state or local income tax examinations for tax years before fiscal year ended 2018. We do not anticipate the total unrecognized tax benefits to significantly change due to the settlement of audits or the expiration of statute of limitations within the next twelve months. Expected timing of cash payments related to the settlement of unrecognized tax benefits is noncurrent and/or unknown.

Inflation Reduction Act of 2022

Changes in tax law and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future. On August 16, 2022, the United States government enacted the Inflation Reduction Act of 2022 that includes changes to the United States corporate income tax system, including a fifteen percent minimum tax based on “adjusted financial statement income,” which is effective for tax years beginning after December 31, 2022, and a one percent excise tax on repurchases of stock after December 31, 2022. The Company has completed its evaluation of the Inflation Reduction Act and its requirements, as well as its application to our business and determined there were no material impacts at March 31, 2023.