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INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES

INCOME TAXES

16.        INCOME TAXES

The Company evaluated the various provisions of the Tax Reform Act, including, the global intangible low-taxed income (“GILTI”) and the foreign derived intangible income provisions. The Company will treat any U.S. tax on foreign earnings under GILTI as a current period expense when incurred.

The Company currently considers the earnings of its foreign entities (excluding Japan) to be permanently reinvested outside the United States based on estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. Accordingly, deferred income taxes have not been recorded for the undistributed earnings of the Company’s foreign subsidiaries excluding Japan. Deferred income taxes have not been recorded for Japan, as any federal, state, or foreign withholding taxes associated with the repatriation of those earnings would be immaterial.

The domestic and foreign components of the Company’s income before provision for income taxes are as follows:

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2021			2020			2019
Domestic*		$	1,431,797		$	1,374,402		$	1,196,883
Foreign*	​	​	369,622	​	​	251,755	​	​	219,079
Income before provision for income taxes		$	1,801,419		$	1,626,157		$	1,415,962

​

*After intercompany royalties, management fees and interest charges from the Company’s domestic to foreign entities of $61.1 million, $54.2 million and $51.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Components of the provision for income taxes are as follows:

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2021			2020			2019
Current:	​	​	​	​	​	​	​	​	​
Federal		$	273,115		$	259,073		$	212,068
State	​	​	44,990	​	​	43,704	​	​	39,982
Foreign	​	​	89,410	​	​	70,658	​	​	55,167
​	​	​	407,515	​	​	373,435	​	​	307,217
​	​	​	​	​	​	​	​	​	​
Deferred:	​	​	​	​	​	​	​	​	​
Federal	​	​	14,750	​	​	11,401	​	​	8,320
State	​	​	4,689	​	​	4,709	​	​	(6,878)
Foreign	​	​	5,092	​	​	(167,595)	​	​	(4,219)
​	​	​	24,531	​	​	(151,485)	​	​	(2,777)
​	​	​	​	​	​	​	​	​	​
Valuation allowance	​	​	(8,102)	​	​	(5,387)	​	​	3,687
​		$	423,944		$	216,563		$	308,127

​

A reconciliation of the total provision for income taxes after applying the U.S. federal statutory rate of 21% to income before provision for income taxes to the reported provision for income taxes are as follows for the years ended:

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2021			2020			2019
U.S. Federal tax expense at statutory rates		$	378,298		$	341,493		$	297,352
State income taxes, net of federal tax benefit	​	​	38,894	​	​	37,478	​	​	30,098
Permanent differences	​	​	(4,168)	​	​	(1,064)	​	​	(2,128)
Stock based compensation	​	​	2,790	​	​	1,097	​	​	(13,473)
Intra-company transfer benefit	​	​	—	​	​	(165,075)	​	​	—
Other	​	​	(649)	​	​	(7,388)	​	​	(12,423)
Foreign rate differential	​	​	16,881	​	​	15,409	​	​	5,014
Valuation allowance	​	​	(8,102)	​	​	(5,387)	​	​	3,687
​		$	423,944		$	216,563		$	308,127

​

Major components of the Company’s deferred tax assets (liabilities) at December 31, 2021 and 2020 are as follows:

​

​	​	​	​	​	​	​
​		2021			2020
Deferred Tax Assets:	​	​	​	​	​	​
Reserve for sales returns		$	889		$	275
Reserve for inventory obsolescence	​	​	3,643	​	​	2,366
Reserve for marketing development fund	​	​	8,951	​	​	9,629
Capitalization of inventory costs	​	​	2,533	​	​	3,365
State franchise tax - current	​	​	2,493	​	​	4,229
Accrued compensation	​	​	2,854	​	​	1,284
Accrued other liabilities	​	​	4,634	​	​	7,464
Deferred revenue	​	​	68,557	​	​	75,592
Stock-based compensation	​	​	24,635	​	​	23,370
Foreign net operating loss carryforward	​	​	14,507	​	​	21,626
Prepaid supplies	​	​	6,317	​	​	5,551
Termination payments	​	​	58,042	​	​	63,009
Operating lease liabilities	​	​	4,711	​	​	4,434
Intangibles	​	​	72,666	​	​	87,687
Impairment-trademarks and others	​	​	2,047	​	​	2,055
Other deferred tax assets	​	​	33,013	​	​	27,164
Total gross deferred tax assets		$	310,492		$	339,100
​	​	​	​	​	​	​
Deferred Tax Liabilities:	​	​	​	​	​	​
Amortization of trademarks		$	(41,517)		$	(42,161)
State franchise tax - deferred	​	​	(5,505)	​	​	(6,318)
Operating lease ROU assets	​	​	(4,711)	​	​	(4,434)
Other deferred tax liabilities	​	​	(618)	​	​	(58)
Depreciation	​	​	(5,907)	​	​	(9,363)
Total gross deferred tax liabilities	​	​	(58,258)	​	​	(62,334)
​	​	​	​	​	​	​
Valuation Allowance	​	​	(27,013)	​	​	(35,116)
​	​	​	​	​	​	​
Net deferred tax assets		$	225,221		$	241,650

​

During the years ended December 31, 2021, 2020 and 2019, the Company established full valuation allowances against certain deferred tax assets, resulting from cumulative net operating losses incurred by certain foreign subsidiaries of the Company. The effect of the valuation allowances and the subsequent related impact on the Company’s overall tax rate was to decrease the Company’s provision for income taxes by $8.1 million and $5.4 million for the years ended December 31, 2021 and 2020, respectively, and increase the Company’s provision for income taxes $3.7 million for the year ended December 31, 2019. At December 31, 2021, the Company had net operating loss carryforwards of approximately $60.5 million. Of this amount, $35.2 million may be carried forward indefinitely. The remaining $25.3 million of net operating loss carryforwards will begin to expire in 2022.

In October 2020, the Company completed an intra-entity transfer of intangible assets between certain of the Company’s foreign subsidiaries to better align its international structure with its expanding operations. The transfer resulted in a step-up of the tax-deductible basis in the transferred assets in a foreign jurisdiction, and created a temporary difference between the tax basis and book basis for such intangible assets. The Company recognized deferred tax assets of approximately $165.1 million, with a corresponding reduction to the provision for income taxes during the fourth quarter of 2020 in its consolidated financial statements. The tax deductions for the amortization of the deferred tax assets will be recognized in the future and any amortization not deducted for tax purposes will be carried forward indefinitely. The tax impact on the foreign subsidiary transferor was not material.

The following is a roll-forward of the Company’s total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31, 2021, 2020 and 2019:

​

​	​	​	​
​		Gross Unrecognized Tax
​	​	Benefits
Balance at December 31, 2018	​	$	5,035
Additions for tax positions related to the current year	​		—
Additions for tax positions related to the prior year	​		1,833
Decreases for tax positions related to prior years	​		(3,875)
Balance at December 31, 2019	​	$	2,993
Additions for tax positions related to the current year	​	​	—
Additions for tax positions related to the prior year	​	​	—
Decreases for tax positions related to prior years	​	​	(2,251)
Balance at December 31, 2020	​	$	742
Additions for tax positions related to the current year	​	​	—
Additions for tax positions related to the prior year	​	​	—
Decreases for tax positions related to prior years	​		(742)
Balance at December 31, 2021	​	$	—

​

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s consolidated financial statements. As of December 31, 2021, the Company had no unrecognized tax benefits.

It is expected that any change in the amount of unrecognized tax benefit change within the next 12 months will not be significant.

The Company is subject to U.S. federal income tax as well as to income tax in multiple state and foreign jurisdictions.

The Company is in various stages of examination with certain states and certain foreign jurisdictions, including the United Kingdom and Ireland. The Company’s 2018 through 2020 U.S. federal income tax returns are subject to examination by the IRS. The Company’s state income tax returns are subject to examination for the 2017 through 2020 tax years.

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- Definition

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.

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