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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the estimated future tax effects of temporary differences between book and tax treatment of assets and liabilities and carryforwards to the extent they are realizable. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, a reduction of the valuation allowance would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, a reduction to the deferred tax asset would be charged to income in the period such determination was made. We record a liability for uncertain tax positions that do not meet the more likely than not standard as prescribed by the authoritative guidance for income tax accounting. We record tax benefits for only those positions that we believe will more likely than not be sustained. Unrecognized tax benefits are the differences between tax positions taken, or expected to be taken, in tax returns, and the benefits recognized for accounting purposes. We classify uncertain tax positions as long-term liabilities. Significant judgment is required in determining our worldwide provision for income taxes and our income tax filings are regularly under audit by tax authorities. Any audit result differing from amounts recorded would increase or decrease income in the period that we determine such adjustment is likely. Interest expense and penalties associated with the underpayment of income taxes are included in income tax expense. Earnings before income taxes were as follows:
(in thousands) |  | For the Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Domestic |  | $ | 483,694 |  |  | $ | 377,964 |  |  | $ | 337,437 |
International |  | 178,291 |  |  | 144,254 |  |  | 120,305 |
|  | $ | 661,985 |  |  | $ | 522,218 |  |  | $ | 457,742 |
The provision (benefit) for income taxes comprised the following:
(in thousands) |  | For the Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Current |  |  |  |  |  |
Federal |  | $ | 72,921 |  |  | $ | 52,194 |  |  | $ | 47,130 |
State |  | 17,346 |  |  | 11,967 |  |  | 10,415 |
International |  | 26,301 |  |  | 24,239 |  |  | 22,015 |
|  | 116,568 |  |  | 88,400 |  |  | 79,560 |
Deferred |  |  |  |  |  |
Federal |  | (14,126) |  |  | 4,826 |  |  | 3,970 |
State |  | (2,863) |  |  | 269 |  |  | (937) |
International |  | (19,725) |  |  | 931 |  |  | (1,898) |
|  | (36,714) |  |  | 6,026 |  |  | 1,135 |
|  | $ | 79,854 |  |  | $ | 94,426 |  |  | $ | 80,695 |
The provision for income taxes differs from the amounts computed by applying the statutory federal income tax rate as follows:
|  | For the Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
U.S. federal statutory rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income tax, net of federal tax benefit |  | 2.4 |  |  | 2.3 |  |  | 2.6 |
Taxation on international earnings |  | (1.0) |  |  | (1.1) |  |  | (0.8) |
Foreign derived intangible income |  | (1.1) |  |  | (1.1) |  |  | (1.3) |
Share-based compensation from settlements |  | (5.9) |  |  | (3.6) |  |  | (4.7) |
Research and development credit |  | (0.8) |  |  | (0.8) |  |  | (0.9) |
Impact of Switzerland tax reform |  | (3.3) |  |  | — |  |  | — |
State income tax carryforwards |  | — |  |  | — |  |  | (0.2) |
Other, net |  | 0.8 |  |  | 1.4 |  |  | 1.9 |
Effective tax rate |  | 12.1 | % |  | 18.1 | % |  | 17.6 | %
Our effective income tax rate was 12.1% for the year ended December 31, 2020, and 18.1% for the year ended December 31, 2019. Our effective income tax rate for the year ended December 31, 2020 was lower primarily due to the one-time positive impact related to the enactment of tax reform in Switzerland due to recording a deferred tax asset related to the transitional benefits, as well as higher tax benefits related to share-based compensation. Our effective income tax rate was 18.1% for the year ended December 31, 2019, and 17.6% for the year ended December 31, 2018. Our effective income tax rate for the year ended December 31, 2019, was higher primarily due to lower tax benefits related to share-based compensation, partially offset by a nonrecurring item recorded in the first quarter of 2018, that resulted from the 2017 Tax Cut and Jobs Act. Income taxes paid, net of refunds received, for the periods ended December 31, 2020, 2019 and 2018 were $110.7 million, $88.0 million, and $69.7 million, respectively. We have received a tax ruling from the Netherlands that documents our mutual understanding of how existing tax laws apply to our circumstances. This ruling expires as of December 31, 2022, and we have been informed that it will not be renewed due to changes to the advance ruling policy in the Netherlands. While the absence of an advance agreement does not preclude our ability to continue to apply existing tax laws in the same manner as allowed by the existing ruling, the lack of such agreement creates uncertainty as to our future tax rate. Further, the Netherlands has recently announced proposals to modify existing rules that, if enacted, could eliminate the benefits to which this ruling applies. We continue to consider these developments within our overall tax strategy. Primarily as a result of this tax ruling, our net income was higher by $14.2 million, $13.7 million, and $9.2 million for the years ended December 31, 2020, 2019, and 2018, respectively. The benefits from our tax rulings are reflected within the overall benefits received from taxation on international earnings in the table above. The components of the net deferred tax assets (liabilities) included in the accompanying consolidated balance sheets are as follows:
(in thousands) |  | December 31, 2020 |  | December 31, 2019
Assets |  |  |  |
Accrued expenses |  | $ | 46,830 |  |  | $ | 25,296 |
Accounts receivable reserves |  | 2,505 |  |  | 617 |
Deferred revenue |  | 7,629 |  |  | 6,073 |
Inventory basis differences |  | 4,272 |  |  | 3,315 |
Property-based differences |  | 14,865 |  |  | 3,113 |
Intangible asset basis differences |  | 51,319 |  |  | — |
Share-based compensation |  | 10,011 |  |  | 10,593 |
Other |  | 1,484 |  |  | 1,160 |
Net operating loss carryforwards |  | 5,427 |  |  | 4,045 |
Tax credit carryforwards |  | 13,385 |  |  | 12,276 |
Unrealized losses on foreign currency exchange contracts and investments |  | 5,060 |  |  | 20 |
Total assets |  | 162,787 |  |  | 66,508 |
Valuation allowance |  | (40,262) |  |  | (9,454) |
Total assets, net of valuation allowance |  | 122,525 |  |  | 57,054 |
Liabilities |  |  |  |
Customer acquisition costs |  | (34,449) |  |  | (28,519) |
Property-based differences |  | (49,547) |  |  | (33,802) |
Intangible asset basis differences |  | (16,134) |  |  | (14,513) |
Other |  | (2,241) |  |  | (3,961) |
Unrealized gains on foreign currency exchange contracts and investments |  | (312) |  |  | (1,183) |
Total liabilities |  | (102,683) |  |  | (81,978) |
Net deferred tax assets (liabilities) |  | $ | 19,842 |  |  | $ | (24,924) |
As of December 31, 2020, we record valuation allowances against certain deferred tax assets related to temporary differences, including intangible asset basis differences and net operating loss (“NOL”) and tax credit carryforwards, as it is more likely than not that they will not be realized or utilized within the carryforward period. The following table summarizes the changes in valuation allowance for deferred tax assets:
(in thousands) |  | For the Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Balance at beginning of year |  | $ | 9,454 |  |  | $ | 6,212 |  |  | $ | 6,211 |
Charges to costs and expense |  | 31,076 |  |  | 3,489 |  |  | 402 |
Write-off/cash payments |  | (34) |  |  | (226) |  |  | — |
Foreign currency translation |  | (234) |  |  | (21) |  |  | (401) |
Balance at the end of the year |  | $ | 40,262 |  |  | $ | 9,454 |  |  | $ | 6,212 |
As of December 31, 2020, we have NOL’s in certain state and international jurisdictions of approximately $23.1 million available to offset future taxable income. Most of these NOL’s will expire at various dates between 2022 and 2027 and the remainder have indefinite lives. The following table summarizes the changes in unrecognized tax positions:
(in thousands) |  | For the Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Total amounts of unrecognized tax benefits, beginning of period |  | $ | 26,841 |  |  | $ | 24,247 |  |  | $ | 21,417 |
Gross (decreases) increases in unrecognized tax positions as a result of tax positions taken during a prior period |  | (1,755) |  |  | (276) |  |  | 2,991 |
Gross increases in unrecognized tax positions as a result of tax positions taken in the current period |  | 4,199 |  |  | 4,083 |  |  | 461 |
Decreases in unrecognized tax positions relating to settlements with taxing authorities |  | (6,446) |  |  | — |  |  | — |
Decreases in unrecognized tax positions as a result of a lapse of the applicable statutes of limitations |  | (355) |  |  | (1,213) |  |  | (622) |
Total amounts of unrecognized tax benefits, end of period |  | $ | 22,484 |  |  | $ | 26,841 |  |  | $ | 24,247 |
The total amount of unrecognized tax benefits at December 31, 2020 and December 31, 2019, was $22.5 million and $26.8 million, respectively. Of the total unrecognized tax benefits at December 31, 2020 and 2019, $21.8 million and $21.2 million, respectively, comprise unrecognized tax positions that would, if recognized, affect our effective tax rate. During the years ended December 31, 2020, 2019 and 2018, we recorded interest expense and penalties of $1.3 million, $1.8 million, and $1.2 million, respectively, as income tax expense in our consolidated statement of income. At December 31, 2020, 2019, and 2018 we had $3.6 million, $3.6 million, and $2.1 million, respectively, of estimated interest expense and penalties accrued in our consolidated balance sheets. In the ordinary course of our business, our income tax filings are regularly under audit by tax authorities. While we believe we have appropriately provided for all uncertain tax positions, amounts asserted by taxing authorities could be greater or less than our accrued position. Accordingly, additional provisions on income tax matters, or reductions of previously accrued provisions, could be recorded in the future as we revise our estimates due to changing facts and circumstances or the underlying matters are settled or otherwise resolved. We are currently under tax examinations in various jurisdictions. We anticipate that these examinations will be concluded within the next two years. With few exceptions, we are no longer subject to income tax examinations in any jurisdiction in which we conduct significant taxable activities for years before 2015.

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