NOTE 13. INCOME TAXES

Earnings before income taxes shown below are based on the geographic location to which such earnings are attributable.



Years ended June 30,	2019		2018		2017

Earnings before income taxes:
United States	$	2,584.6	$	1,937.2	$	2,305.8
Foreign	421.0		345.4		311.1
	$	3,005.6	$	2,282.6	$	2,616.9

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



Years ended June 30,	2019			2018			2017

Current:
Federal	$	464.3		$	366.6		$	615.3
Foreign	129.1			105.5			91.6
State	110.1			77.6			82.7
Total current	703.5			549.7			789.6

Deferred:
Federal	7.9			(193.0		)	30.5
Foreign	12.8			26.1			10.8
State	(11.4		)	14.9			(1.8		)
Total deferred	9.3			(152.0		)	39.5
Total provision for income taxes	$	712.8		$	397.7		$	829.1

A reconciliation between the Company's effective tax rate and the U.S. federal statutory rate is as follows:



Years ended June 30,	2019			%		2018			%		2017			%

Provision for taxes at U.S. statutory rate	$	631.2		21.0		$	640.5		28.1		$	915.9		35.0

Increase/(decrease) in provision from:
State taxes, net of federal tax benefit	80.7			2.7		58.1			2.5		54.4			2.1
U.S. tax on foreign income	—			—		12.0			0.5		66.1			2.5
Utilization of foreign tax credits	—			—		(19.6		)	(0.9	)	(76.0		)	(2.9	)
Tax settlements	—			—		(31.9		)	(1.4	)	(33.2		)	(1.3	)
Re-measurement of deferred tax balances	—			—		(253.3		)	(11.1	)	—			—
Section 199 - Qualified production activities and research tax credit refund claim - net of reserves	—			—		—			—		(51.8		)	(2.0	)
Resolution of tax matters - Section 199 Qualified production activities and research tax credit refund claim	—			—		(33.3		)	(1.5	)	—			—
Foreign rate differential	46.9			1.6		—			—		—			—
Excess tax benefit - Stock-based compensation	(29.8		)	(1.0	)	(26.7		)	(1.2	)	(32.1		)	(1.2	)
Other	(16.2		)	(0.6	)	51.9			2.4		(14.2		)	(0.5	)
	$	712.8		23.7		$	397.7		17.4		$	829.1		31.7

The effective tax rate for fiscal 2019 and 2018 was 23.7% and 17.4%, respectively. The increase in the effective tax rate is primarily due to the one-time benefit recognized on the re-measurement of deferred tax balances, primarily as a result of ASC 606, using the lower tax rates enacted under the Act, the release of reserves for uncertain tax positions during fiscal 2018 and the loss of the qualified production activities tax deduction as a result of the Act during fiscal 2019. This is partially offset by the reduction in the federal corporate statutory tax rate to 21% from our blended rate for fiscal 2018 of 28.1% as a result of the Act.

The Act reduced the U.S. federal corporate income tax rate from 35% to 21%. In accordance with ASC 740, companies re-measured deferred tax balances using the new enacted tax rates. The Act required the Company to pay a one-time transition tax on earnings of the Company's foreign subsidiaries that were previously tax deferred for U.S. income taxes and created new taxes on the Company's foreign sourced earnings.

At December 31, 2018, the Company completed its accounting for all of the income tax effects of the Act. The adjustments were as follows:

The Act’s foreign tax credit provisions may limit the Company’s ability to utilize existing foreign tax credits in future periods, accordingly we have estimated that approximately $19.2 million could expire unutilized. During fiscal 2018, the Company recorded $28.3 million related to foreign withholding taxes on future distributions of earnings and profits ("E&P") that may not be utilizable as foreign tax credits.

During fiscal 2018, the Company recorded a benefit of $253.3 million (restated for ASC 606) to account for the effects of the rate change on deferred tax balances.

The one-time transition tax is based on the total post-1986 E&P that was previously deferred from US income taxes. During fiscal 2018, the Company recorded an amount for the one-time transition tax liability of $22.9 million for the Company's foreign subsidiaries.

Since June 30, 2018, the Company made no significant adjustments to the amounts recorded during the measurement period.

The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:



Years ended June 30,	2019			2018

Deferred tax assets:
Accrued expenses not currently deductible	$	228.9		$	178.3
Stock-based compensation expense	45.3			49.6
Foreign tax credits	25.1			40.0
Net operating losses	54.0			44.6
Unrealized investment losses, net	—			83.6
Retirement Benefits	5.6			—
Other	20.2			20.4
	379.1			416.5
Less: valuation allowances	(31.6		)	(46.0		)
Deferred tax assets, net	$	347.5		$	370.5

Deferred tax liabilities:
Prepaid retirement benefits	$	—		$	19.3
Deferred revenue	475.9			452.4
Fixed and intangible assets	279.5			242.4
Prepaid expenses	86.2			71.8
Unrealized investment gains, net	63.0			—
Tax on unrepatriated earnings	31.6			28.3
Other	7.2			9.4
Deferred tax liabilities	943.4			823.6
Net deferred tax liabilities	$	595.9		$	453.1

There are $64.0 million and $68.9 million of long-term deferred tax assets included in other assets on the Consolidated Balance Sheets at June 30, 2019 and 2018, respectively.

Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of approximately $278.6 million as the Company considers such earnings to be permanently reinvested outside of the United States. As of June 30, 2019, it is not practicable to estimate the unrecognized tax liability that would occur upon distribution.

The Company has estimated foreign net operating loss carry-forwards of approximately $54.1 million as of June 30, 2019, of which $1.9 million expire through June 2027 and $52.2 million have an indefinite utilization period. As of June 30, 2019, the Company has approximately $70.3 million of federal net operating loss carry-forwards from acquired companies. The net operating losses have an annual utilization limitation pursuant to section 382 of the Internal Revenue Code and expire through June 2036.

The Company has state net operating loss carry-forwards of approximately $372.0 million as of June 30, 2019, which expire through June 2038. The Company has recorded valuation allowances of $31.6 million and $46.0 million at June 30, 2019 and 2018, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized.

Income tax payments were approximately $633.8 million, $529.7 million, and $817.1 million for fiscal 2019, 2018, and 2017, respectively.

As of June 30, 2019, 2018, and 2017 the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $54.2 million, $45.2 million, and $74.6 million respectively. The amount that, if recognized, would impact the effective tax rate is $43.3 million, $36.1 million, and $61.0 million, respectively. The remainder, if recognized, would principally impact deferred taxes.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



	2019			2018			2017

Unrecognized tax benefits at beginning of the year	$	45.2		$	74.6		$	27.4
Additions for tax positions	9.5			4.0			7.5
Additions for tax positions of prior periods	18.3			19.8			41.9
Reductions for tax positions of prior periods	(7.7		)	(40.5		)	(0.5		)
Settlement with tax authorities	(10.3		)	(11.7		)	(0.9		)
Expiration of the statute of limitations	(0.6		)	(1.0		)	(0.9		)
Impact of foreign exchange rate fluctuations	(0.2		)	—			0.1
Unrecognized tax benefit at end of year	$	54.2		$	45.2		$	74.6

Interest expense and penalties associated with uncertain tax positions have been recorded in the provision for income taxes on the Statements of Consolidated Earnings. During the fiscal years 2019, 2018, and 2017, the Company recorded interest expense of $1.9 million, $3.2 million, and $3.0 million, respectively. Penalties incurred during fiscal years 2019, 2018, and 2017 were not significant.

At June 30, 2019, the Company had accrued interest of $9.3 million recorded on the Consolidated Balance Sheets, of which $4.3 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2018, the Company had accrued interest of $7.9 million recorded on the Consolidated Balance Sheets, of which $4.8 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2019, the Company had accrued penalties of $0.3 million recorded on the Consolidated Balance Sheets within other liabilities. At June 30, 2018, the Company had accrued penalties of $0.3 million recorded on the Consolidated Balance Sheets within other liabilities.

The Company is routinely examined by the IRS and tax authorities in foreign countries in which it conducts business, as well as tax authorities in states in which it has significant business operations. The tax years currently under examination vary by jurisdiction. Examinations in progress in which the Company has significant business operations are as follows:



Taxing Jurisdiction		Fiscal Years under Examination
U.S. (IRS)		2018-2019
Wisconsin		2011-2014
Michigan		2012-2014
India		2003-2007, 2008-2010, 2013-2015

The Company regularly considers the likelihood of assessments resulting from examinations in each of the jurisdictions. The resolution of tax matters is not expected to have a material effect on the consolidated financial condition of the Company, although a resolution could have a material impact on the Company's Statements of Consolidated Earnings for a particular future period and on the Company's effective tax rate.

If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. Based on current estimates, settlements related to various jurisdictions and tax periods could increase earnings up to $3 million and expected cash payments could be up to $10 million in the next twelve months. The liability related to cash payments expected to be paid within the next 12 months has been reclassified from other liabilities to current liabilities on the Consolidated Balance Sheets. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known.