

	Twelve Months Ended July 31,
(In millions)	2017		2016			2015
Current:
Federal	$	345	$	401		$	253
State	36		33			20
Foreign	8		13			7
Total current	389		447			280
Deferred:
Federal	4		(42		)	14
State	1		(7		)	1
Foreign	2		(1		)	4
Total deferred	7		(50		)	19
Total provision for income taxes from continuing operations	$	396	$	397		$	299

In the first quarter of fiscal 2017, we elected to early adopt ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This new standard requires excess tax benefits recognized on stock-based compensation expense to be reflected in the statements of operations as a component of the provision for income taxes on a prospective basis. For the twelve months ended July 31, 2017, we recognized excess tax benefits of $72 million in our current provision for income taxes. See Note 1, “Description of Business and Summary of Significant Accounting Policies,” for more information.

For periods prior to ASU 2016-09 adoption, excess tax benefits associated with share-based compensation deductions are credited to stockholders’ equity rather than current tax expense. The reductions of income taxes payable resulting from share-based compensation deductions that were credited to stockholders’ equity were approximately $59 million for the twelve months ended July 31, 2016, and $85 million for the twelve months ended July 31, 2015.

The sources of income from continuing operations before the provision for income taxes consisted of the following for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2017		2016			2015
United States	$	1,362	$	1,205		$	716
Foreign	5		(2		)	(4		)
Total	$	1,367	$	1,203		$	712

Differences between income taxes calculated using the federal statutory income tax rate of 35% and the provision for income taxes from continuing operations were as follows for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2017			2016			2015
Income from continuing operations before income taxes	$	1,367		$	1,203		$	712

Statutory federal income tax	$	479		$	421		$	249
State income tax, net of federal benefit	24			17			15
Federal research and experimentation credits	(24		)	(33		)	(19		)
Domestic production activities deduction	(34		)	(34		)	(19		)
Stock-based compensation	14			16			15
Federal excess tax benefits related to stock-based compensation	(69		)	—			—
Effects of non-U.S. operations	5			11			12
Non-deductible goodwill	—			—			40
Other, net	1			(1		)	6
Total provision for income taxes from continuing operations	$	396		$	397		$	299

The state income tax line in the table above includes $3 million of excess tax benefits related to stock-based compensation associated with the adoption of ASU 2016-09.

In December 2015 the Consolidated Appropriations Act, 2016 was signed into law. The Act includes a permanent reinstatement of the federal research and experimentation credit that was retroactive to January 1, 2015. We recorded a discrete tax benefit of approximately $12 million for the retroactive effect during the twelve months ended July 31 2016.

In December 2014 the Tax Increase Prevention Act of 2014 was signed into law. The Act includes a reinstatement of the federal research and experimentation credit through December 31, 2014 that was retroactive to January 1, 2014. We recorded a discrete tax benefit of approximately $11 million for the retroactive effect during the twelve months ended July 31, 2015.



	July 31,
(In millions)	2017			2016
Deferred tax assets:
Accruals and reserves not currently deductible	$	35		$	33
Deferred revenue	74			56
Deferred rent	13			14
Accrued and deferred compensation	62			55
Loss and tax credit carryforwards	71			51
Stock-based compensation	70			62
Other, net	14			11
Total gross deferred tax assets	339			282
Valuation allowance	(64		)	(40		)
Total deferred tax assets	275			242
Deferred tax liabilities:
Intangible assets	93			86
Property and equipment	57			24
Total deferred tax liabilities	150			110
Net deferred tax assets	$	125		$	132

The components of total net deferred tax assets, net of valuation allowances, as shown on our balance sheets were as follows at the dates indicated:



	July 31,
(In millions)	2017			2016
Long-term deferred income taxes	$	132		$	139
Long-term deferred income taxes included in other long-term obligations	(7		)	(7		)
Net deferred tax assets	$	125		$	132

We have provided a valuation allowance related to state tax credit carryforwards, foreign loss carryforwards, and state operating and capital loss carryforwards that we believe are unlikely to be realized. Changes in the valuation allowance during the twelve months ended July 31, 2017 were primarily related to an increase in the valuation allowance for state tax credit and foreign loss carryforwards. Changes in the valuation allowance during the twelve months ended July 31, 2016 were primarily related to an increase in the valuation allowance for foreign operating loss carryforwards, state tax credit and state capital loss carryforwards.

At July 31, 2016, the income tax expense associated with the net gain from discontinued operations consisted of $179 million related to the sale of Demandforce, QuickBase, and Quicken, and $2 million related to the increase of valuation allowance on state capital loss carryforwards. See Note 6, “Discontinued Operations,” for more information.

At July 31, 2017, we had total federal net operating loss carryforwards of approximately $16 million that will start to expire in fiscal 2028. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.

At July 31, 2017, we had total state net operating loss carryforwards of approximately $103 million for which we have recorded a deferred tax asset of $6 million and a valuation allowance of $5 million. The state net operating losses will start to expire in fiscal 2018. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.

At July 31, 2017, we had Singapore operating loss carryforwards of approximately $92 million and Brazil operating loss carryforwards of approximately $14 million which have an indefinite carryforward period. We recorded a full valuation allowance on the related deferred tax asset.

At July 31, 2017, we had California research and experimentation credit carryforwards of approximately $66 million. We recorded a full valuation on the related deferred tax asset.



	Twelve Months Ended July 31,
(In millions)	2017			2016			2015
Gross unrecognized tax benefits, beginning balance	$	60		$	56		$	40
Increases related to tax positions from prior fiscal years, including acquisitions	8			7			15
Decreases related to tax positions from prior fiscal years	(8		)	(7		)	(1		)
Increases related to tax positions taken during current fiscal year	9			15			5
Settlements with tax authorities	(8		)	(11		)	(3		)
Gross unrecognized tax benefits, ending balance	$	61		$	60		$	56

The total amount of our unrecognized tax benefits at July 31, 2017 was $61 million. Net of related deferred tax assets, unrecognized tax benefits were $38 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $38 million. We do not believe that it is reasonably possible that there will be a significant increase or decrease in unrecognized tax benefits over the next 12 months.

We file U.S. federal, U.S. state, and foreign tax returns. Our major tax jurisdictions are U.S. federal and the State of California. For U.S. federal tax returns we are no longer subject to tax examinations for years prior to fiscal 2013. For California tax returns we are currently under tax examinations for fiscal 2009 to fiscal 2015.