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Income Taxes
6 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

 

9. Income Taxes

The Company recorded an income tax benefit of $1.0 million and $6.9 million, respectively, during the three and six months ended March 31, 2019. The tax benefit for three months was driven by U.S. losses during the period and includes $0.4 million of stock compensation windfalls. These benefits were slightly offset by the tax provision on foreign earnings during the period and a discrete expense related to interest accruing on uncertain tax positions. The tax benefit for the six months ended March 31, 2019 was primarily driven by discrete benefits related to stock compensation windfalls of $4.1 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 increased by the tax benefit recorded on losses during the period.

The Company recorded an income tax benefit of $54.5 million and $55.2 million, respectively, during the three and six months ended March 31, 2018. The tax benefit recorded during each period was primarily driven by a discrete benefit due to the reversal of a valuation allowance against U.S. net deferred tax assets during the three months ended March 31, 2018 in the amount of $58.0 million. The tax benefit for the six months ended March 31, 2018 included $0.7 million of tax benefits related to the re-measurement of net U.S. deferred tax liabilities to account for the reduced 21 percent statutory federal income tax rate. This benefit for the three and six months ended March 31, 2018 was partially offset by the tax provisions related to foreign income.

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 while 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 March 31, 2019.  

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. The Company recognized interest expense related to its unrecognized tax benefits of $0.4 million and $0.5 million, respectively, during the three and six months ended March 31, 2019. During the six months ended March 31, 2018 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.