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Income Taxes
3 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

 

9. Income Taxes

The Company recorded an income tax benefit of $5.8 million and $0.7 million, respectively, for the three months ended December 31, 2018 and the three months ended December 31, 2017. The tax benefit for the three months ended December 31, 2018 was primarily driven by discrete benefits related to stock compensation windfalls of $3.7 million for tax deductions that exceeded the associated compensation expense, $1.4 million of tax benefits related to the remeasurement of net U.S. deferred tax assets due to state tax rate changes, and a $1.1 million transition tax reduction. These discrete benefits were slightly offset by the tax provision on foreign earnings during the period.

The tax benefit for the three months ended December 31, 2017 was primarily driven by discrete benefits related to the reduction of reserves for unrecognized tax benefits of $0.3 million of tax and $0.7 million of tax benefits related to the remeasurement of net U.S. deferred tax liabilities at the reduced 21 percent federal income tax rate. These discrete benefits were slightly offset by the tax provision on foreign earnings during the period.

During 2018, the Internal Revenue Service issued proposed regulations on the federal toll charge and various other aspects of the Tax Cuts and Jobs Act. The Company finalized its analysis of the toll charge and related liabilities, including uncertain tax positions, during the three months ended December 31, 2018 pursuant to U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 118.  As a result of the new guidance issued and additional work to complete the calculation of its federal toll charge, the Company reduced its provisional accrual for federal, state and foreign taxes by net $1.1 million during the three months ended December 31, 2018. In addition, the Company also assessed its uncertain tax positions related to these taxes and accrued income and determined no tax reserves were required.

The Company evaluates the realizability of its deferred tax assets by tax-paying component and assesses the need for a valuation allowance on an annual and quarterly basis. The Company evaluates the profitability of each tax-paying component on a historic cumulative basis and a forward-looking basis in the course of performing this analysis. The Company evaluated all positive and negative evidence in concluding it was appropriate to release the majority of the valuation allowance against U.S. net deferred tax assets during fiscal year 2018.  The remaining portion of the Company’s U.S. valuation allowance is related to the realizability of certain state tax credits and net operating loss carry-forwards. The Company continues to maintain valuation allowances against net deferred tax assets in certain foreign tax-paying components as of December 31, 2018.  

During the three months ended December 31, 2018, the Company recorded $37.4 million of deferred tax liabilities in purchase accounting in connection with the acquisition of GENEWIZ.  Also, as a result of the acquisition, the Company recorded a $13.4 million reserve in purchase accounting for unrecognized tax benefits related to uncertain tax positions taken by GENEWIZ in prior years.

As of December 31, 2018, the Company has evaluated all relevant information related to U.S. tax reform under the allowable period pursuant to SEC Staff Accounting Bulletin No. 118 and has decided to maintain its indefinite reinvestment assertion. Based on this the Company has not provided income taxes on the outside basis differences of its foreign subsidiaries. The Company continues to expect its foreign earnings to be reinvested in foreign operations and acquisitions. The Company has not accrued foreign withholding tax costs on unremitted earnings.

The Company maintains liabilities for uncertain tax positions. These liabilities involve judgment and estimation and are monitored based on the best information available. The Company recognizes interest related to unrecognized benefits as a component of the income tax benefit, of which $0.1 million was recognized during the three months ended December 31, 2018. During the three months ended December 31, 2017 the statute of limitations lapsed on an uncertain tax positions in a foreign jurisdiction which resulted in a $0.3 million reduction in the gross unrecognized tax benefits that impacted the effective tax rate.

The Company is subject to U.S. federal income tax and state, local and international income taxes in various jurisdictions. The amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files tax returns. In the normal course of business, the Company is subject to income tax audits in various global jurisdictions in which it operates. The years subject to examination vary for the U.S. and international jurisdictions, with the earliest tax year being 2011. Based on the outcome of these examinations or the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the Company’s unaudited Consolidated Balance Sheets. The Company currently anticipates that it is reasonably possible that the unrecognized tax benefits will be reduced by approximately $0.1 million within the next twelve months.