|12 Months Ended|
Jun. 30, 2022
|Notes to Financial Statements|
|Income Tax Disclosure [Text Block]||
Note 11. Income Taxes:
Income before income taxes was comprised of the following (in thousands):
The provision for income taxes consisted of the following (in thousands):
The Company’s effective income tax rate for fiscal 2022 was 12.7% vs 5.8% in the prior year. The change in the effective tax rate for fiscal 2022 and 2021 was driven by a mix of increased net income and the dilutive effect the increased net income has on the favorable rate benefits, primarily related to share-based compensation excess tax benefits of $29.3 million in fiscal 2022.
The Company’s effective income tax rate for fiscal 2021 was 5.8% vs 17.1% in the prior year. The change in the effective tax rate for fiscal 2021 and 2020 was driven by changes in net discrete tax benefits of $28.1 million and $19.4 million for fiscal year 2021 and 2020, respectively.
The Company’s discrete tax benefits in fiscal 2022, 2021, and 2020 primarily related to share-based compensation excess tax benefits of $29.3 million, $28.1 million, and $17.7 million, respectively.
The following is a reconciliation of the federal tax calculated at the statutory rate of to the actual income taxes provided:
Deferred taxes on the Consolidated Balance Sheets consisted of the following temporary differences (in thousands):
A deferred tax valuation allowance is required when it is more likely than not that all or a portion of deferred tax assets will not be realized. The valuation allowance as of June 30, 2022 was $9.5 million compared to $6.7 million in the prior year.
As of June 30, 2022, the $9.5 million valuation allowance relates to certain foreign and state tax net operating loss and state credit carryforwards that existed at the date the Company completed various previous acquisitions as well as immaterial amounts generated after the acquisitions. The Company believes it is more likely than not that these tax carryovers will not be realized.
As of June 30, 2022, the Company has federal operating loss carryforwards of approximately $72.2 million and state operating loss carryforwards of $161.7 million from its previous acquisitions, which are not limited under IRC
Section 382. As of June 30, 2022, the Company has foreign net operating loss carryforwards of $14.0 million. Some of the net operating loss carryforwards expire between fiscal 2023 and 2036. Federal net operating loss carryforwards generated after December 31, 2017 have an indefinite carryforward period but the Company expects to be fully utilize these attributes by June 30, 2027. The Company has a deferred tax asset of $21.6 million, net of the valuation allowance discussed above, related to the net operating loss carryovers. As of June 30, 2022, the Company has federal and state tax credit carryforwards of $8.0 million and $6.5 million, respectively. The federal tax credit carryforwards expire between 2028 and 2040. The majority of the state credit carryforwards have no expiry date. The state credit carryforwards that have expiry dates have a full valuation allowance. The Company has a deferred tax asset of $10.0 million, net of the valuation allowance discussed above, related to the tax credit carryovers.
As of June 30, 2022, the Company has approximately $238 million of undistributed earnings in its foreign subsidiaries. Approximately $97 million of these earnings are no longer considered permanently reinvested. The Company expects to be able to repatriate earnings without incurring any withholding taxes and expects to be tax neutral. The Company has not provided deferred taxes on approximately $141 million of undistributed earnings from non-U.S. subsidiaries as of June 30, 2022 which are indefinitely reinvested in operations. Because of the multiple entities as well as the complexities of laws and regulations by which to repatriate the earnings to minimize tax cost, it is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely. A deferred tax liability will be recognized if the Company can no longer demonstrate that it plans to indefinitely reinvest the undistributed earnings.
We continue to analyze our global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent, which include local country withholding tax and potential U.S. state taxation.
The following is a reconciliation of the beginning and ending balance of unrecognized tax benefits (in thousands):
Included in the balance of unrecognized tax benefits at June 30, 2022 are potential benefits of $5.3 million that, if recognized, would affect the effective tax rate on income from continuing operations. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. The Company had $0.3 million of accrued interest and penalties as of June 30, 2022. The amount recorded for the periods ended June 30, 2021 and 2020 was immaterial. The Company does not believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase in the next twelve months. The Company files income tax returns in the U.S. federal and certain state tax jurisdictions, and several jurisdictions outside the U.S. The Company’s federal returns are subject to tax assessment for 2018 and subsequent years. State and foreign income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.
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.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef