Income Taxes

12 Months Ended

Jul. 31, 2020

The Company is subject to taxation in U.S. federal, state, and local jurisdictions and various non-U.S. jurisdictions, including Australia and Canada. The Company’s effective tax rate is impacted by the tax laws, regulations, practices and interpretations in the jurisdictions in which it operates and may fluctuate significantly from period to period depending on, among other things, the geographic mix of the Company’s profits and losses, changes in tax laws and regulations or their application and interpretation, the outcome of tax audits and changes in valuation allowances associated with the Company’s deferred tax assets.

On March 27, 2020, in response to the COVID-19 pandemic, the U.S. government enacted legislation commonly referred to as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act includes various amendments to the U.S. tax code that impacted the Company’s accounting and reporting for income taxes during the year ended July 31, 2020, and the Company expects these amendments will continue to impact its accounting and reporting for income taxes in the future. The primary provisions of the CARES Act that the Company has been impacted by include:

•

allowing a carryback of the entire amount of eligible Federal net operating losses (“NOLs”) generated in calendar years 2018, 2019 and 2020 for up to five years prior to when such losses were incurred, representing a change from previous rules under the Tax Cuts & Jobs Act of 2017 (the “TCJA”), in which NOLs could not be carried back to prior years and utilization was limited to 80% of taxable income in future years. Under the CARES Act, the Company was permitted to carry back its pre-existing NOLs to tax years prior to the enactment of the TCJA and obtain an incremental benefit of $3.8 million related to the differential in federal tax rates between years that NOLs were generated and years that the NOLs will be carried back to;


•	treatment of certain qualified improvement property (“QIP”) as 15-year property and allowing such QIP placed in service after December 31, 2017 to be eligible for bonus depreciation, which could incrementally add to its pre-existing NOLs; and


•	increases in the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income for calendar years 2019 and 2020.

The CARES Act also provides refundable employee retention credits and defers the requirement to remit the employer-paid portion of social security payroll taxes. As a result, during the year ended July 31, 2020, the Company recorded a benefit of approximately $9.6 million, which primarily offset Mountain and Lodging operating expense as a result of wages paid to employees who were not providing services. Additionally, the Company deferred payment of the employer-paid portion of social security payroll taxes through the end of calendar year 2020 and will remit such amounts in equal installments during calendar years 2021 and 2022.

The Company also recognized a benefit of approximately $8.5 million during the year ended July 31, 2020 as a result of the recent Canada Emergency Wage Subsidy and Australian JobKeeper legislation for its Canadian and Australian employees, which primarily offset Mountain and Lodging operating expense.

U.S. and foreign components of income before (provision) benefit from income taxes is as follows (in thousands):



	Year Ended July 31,
	2020		2019		2018
U.S.	$	89,838	$	306,323	$	264,379
Foreign	26,595		92,642		75,713
Income before income taxes	$	116,433	$	398,965	$	340,092

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company’s deferred tax liabilities and assets are as follows (in thousands):



	July 31,
	2020			2019
Deferred income tax liabilities:
Fixed assets	$	216,016		$	153,182
Intangible assets	86,509			73,146
Operating lease right of use assets	53,727			—
Other	13,709			13,425
Total	369,961			239,753
Deferred income tax assets:
Canyons obligation	14,997			13,922
Stock-based compensation	10,313			9,620
Investment in Partnerships	12,400			13,281
Deferred compensation and other accrued benefits	9,918			10,674
Contingent Consideration	4,468			6,771
Unfavorable lease obligation, net	285			4,896
Net operating loss carryforwards and other tax credits	13,205			5,631
Operating lease liabilities	60,838			—
Other, net	21,427			18,850
Total	147,851			83,645
Valuation allowance for deferred income taxes	(5,330		)	(5,365		)
Deferred income tax assets, net of valuation allowance	142,521			78,280
Net deferred income tax liability	$	227,440		$	161,473

The components of deferred income taxes recognized in the Consolidated Balance Sheets are as follows (in thousands):



	July 31,
	2020		2019
Deferred income tax asset	$	6,751	$	7,286
Deferred income tax liability	234,191		168,759
Net deferred income tax liability	$	227,440	$	161,473

Significant components of the provision (benefit) from income taxes are as follows (in thousands):



	Year Ended July 31,
	2020			2019		2018
Current:
Federal	$	(13,467	)	$	24,309	$	(43,366	)
State	(731		)	8,539		9,562
Foreign	4,141			20,205		18,436
Total current	(10,057		)	53,053		(15,368		)
Deferred:
Federal	12,597			16,983		(45,922		)
State	4,266			5,282		2,941
Foreign	572			154		(2,789		)
Total deferred	17,435			22,419		(45,770		)
Provision (benefit) from income taxes	$	7,378		$	75,472	$	(61,138	)

A reconciliation of the income tax provision (benefit) from continuing operations and the amount computed by applying the United States federal statutory income tax rate to income before income taxes is as follows:



	Year Ended July 31,
	2020		2019		2018
At U.S. federal income tax rate	21.0	%	21.0	%	26.8	%
State income tax, net of federal benefit	3.5	%	2.8	%	3.0	%
Change in uncertain tax positions	(3.8	)%	(1.6	)%	—	%
Change in valuation allowance	—	%	—	%	0.3	%
Excess tax benefits related to stock-based compensation	(7.1	)%	(3.0	)%	(20.9	)%
Impacts of the Tax Act and other legislative changes	(3.2	)%	—	%	(24.7	)%
Noncontrolling interests	(2.4	)%	(1.5	)%	(1.7	)%
Foreign rate differential	(2.4	)%	0.4	%	(1.5	)%
Other	0.7	%	0.8	%	0.7	%
Effective tax rate	6.3	%	18.9	%	(18.0	)%

A reconciliation of the beginning and ending amount of unrecognized tax benefits associated with uncertain tax positions, excluding associated deferred tax benefits and accrued interest and penalties, if applicable, is as follows (in thousands):



	Year Ended July 31,
	2020			2019			2018
Balance, beginning of year	$	72,222		$	78,242		$	76,111
Additions for tax positions of prior years	16,654			11,520			12,394
Lapse of statute of limitations	(18,577		)	(17,540		)	(10,263		)
Balance, end of year	$	70,299		$	72,222		$	78,242

As of July 31, 2020, the Company’s unrecognized tax benefits associated with uncertain tax positions relate to the treatment of the Talisker lease payments as payments of debt obligations and that the tax basis in Canyons goodwill is deductible, and are included within “other long-term liabilities” in the accompanying Consolidated Balance Sheets.

During the year ended July 31, 2020, the Company experienced a reduction in the uncertain tax positions due to the lapse of the statute of limitations of $18.6 million, which was partially offset with an increase to the uncertain tax position of $16.7 million. Interest and penalties associated with the statute of limitations lapse were approximately $3.1 million. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. Additionally, the Company expects a reduction to its uncertain tax positions for the fiscal year ending July 31, 2021, due to the lapse of the statute of limitations. As of July 31, 2020 and 2019, accrued interest and penalties, net of tax, was $6.2 million and $6.3 million, respectively. For the years ended July 31, 2020, 2019 and 2018, the Company recognized income tax (benefit) expense of ($0.1 million), $1.1 million and $1.6 million of interest (benefit) expense and penalties, net of tax, respectively.

The Company’s major tax jurisdictions in which it files income tax returns are the U.S. federal jurisdiction, various state jurisdictions, Australia, and Canada. The Company is no longer subject to U.S. federal examinations for tax years prior to 2015. With few exceptions, the Company is no longer subject to examination by various U.S. state jurisdictions for tax years prior to 2014. Additionally, the Company is no longer subject to audits for the tax years prior to 2015 for Australia and Canada.

The Company has NOL carryforwards totaling $58.6 million, primarily comprised of $49.8 million of federal and state NOLs as a result of the acquisition of Peak Resorts in September 2019 that will expire beginning July 31, 2032, $4.9 million of historical state NOLs that will expire by July 31, 2032 and non-U.S. NOLs of $3.9 million that will carry forward indefinitely. In connection with Peak Resorts’ initial public offering in November 2014, as well as the Company’s acquisition of Peak Resorts in September 2019, Peak Resorts had two ownership changes pursuant to the provisions of the Tax Reform Act of 1986. As a result, the Company’s usage of its eligible Federal NOL carryforwards will be limited each year by these ownership changes; however, management believes the full benefit of those carryforwards will be realized prior to their respective expiration dates. As of July 31, 2020, the Company has recorded a valuation allowance on $3.9 million of the historical non-U.S. NOL carryforwards, as the Company has determined that it is more likely than not that the associated NOL carryforwards will not be realized. Additionally, the Company has foreign tax credit carryforwards of $4.2 million, which expire by the year ending July 31, 2028. As of July 31, 2020, the Company has recorded a valuation allowance of $4.2 million on foreign tax credit carryforwards, as the Company has determined that it is more likely than not that these foreign tax credit carryforwards will not be realized.

The Company may be required to record additional valuation allowances if, among other things, adverse economic conditions, including those caused by the COVID-19 pandemic, negatively impact the Company’s ability to realize its deferred tax assets. Evaluating and estimating the Company’s tax provision, current and deferred tax assets and liabilities and other tax accruals requires significant management judgment. The Company intends to indefinitely reinvest undistributed earnings, if any, in its Canadian foreign subsidiaries. It is not practical at this time to determine the income tax liability related to any remaining undistributed earnings.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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