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Income Taxes | 12 Months Ended
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Dec. 31, 2022
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. In assessing the need for a valuation allowance, we consider future taxable income and ongoing prudent and feasible tax planning strategies. In the event that 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,
|  | 2022 |  | 2021 |  | 2020
Domestic |  | $ | 684,661 |  |  | $ | 689,994 |  |  | $ | 483,694 |
International |  | 175,311 |  |  | 212,660 |  |  | 178,291 |
|  | $ | 859,972 |  |  | $ | 902,654 |  |  | $ | 661,985 |
The provision (benefit) for income taxes comprised the following:
(in thousands) |  | For the Years Ended December 31,
|  | 2022 |  | 2021 |  | 2020
Current |  |  |  |  |  |
Federal |  | $ | 150,099 |  |  | $ | 112,811 |  |  | $ | 72,921 |
State |  | 30,529 |  |  | 19,147 |  |  | 17,346 |
International |  | 35,138 |  |  | 29,288 |  |  | 26,301 |
|  | 215,766 |  |  | 161,246 |  |  | 116,568 |
Deferred |  |  |  |  |  |
Federal |  | (31,663) |  |  | (7,019) |  |  | (14,126) |
State |  | (5,735) |  |  | (503) |  |  | (2,863) |
International |  | 2,515 |  |  | 4,086 |  |  | (19,725) |
|  | (34,883) |  |  | (3,436) |  |  | (36,714) |
|  | $ | 180,883 |  |  | $ | 157,810 |  |  | $ | 79,854 |
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,
|  | 2022 |  | 2021 |  | 2020
U.S. federal statutory rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income tax, net of federal tax benefit |  | 2.3 |  |  | 2.1 |  |  | 2.4 |
Taxation on international earnings |  | 0.6 |  |  | (0.8) |  |  | (1.0) |
Foreign derived intangible income |  | (1.7) |  |  | (1.2) |  |  | (1.1) |
Share-based compensation from settlements |  | (1.5) |  |  | (3.6) |  |  | (5.9) |
Research and development credit |  | (1.1) |  |  | (0.7) |  |  | (0.8) |
Impact of Switzerland tax reform |  | — |  |  | — |  |  | (3.3) |
Other, net |  | 1.4 |  |  | 0.7 |  |  | 0.8 |
Effective tax rate |  | 21.0 | % |  | 17.5 | % |  | 12.1 | %
Our effective income tax rate was 21.0% for the year ended December 31, 2022, and 17.5% for the year ended December 31, 2021. Our effective income tax rate for the year ended December 31, 2022, was higher primarily due to decreases in tax benefits related to share-based compensation and higher taxes on international income. Income taxes paid, net of refunds received, for the periods ended December 31, 2022, 2021, and 2020, were $239.8 million, $161.7 million, and $110.7 million, respectively. Prior to January 1, 2022, we received benefits from a tax ruling in the Netherlands that documented our mutual understanding of how prior tax laws applied to our circumstances. Primarily as a result of this tax ruling, our net income was higher by $21.4 million and $14.2 million for the years ended December 31, 2021 and 2020, respectively. The benefits from these tax rulings are reflected within the overall benefits received from taxation on international earnings during those years in the table above. On December 21, 2021, the Netherlands adopted legislation eliminating the tax benefits related to this tax ruling for tax years beginning after December 31, 2021. The components of the net deferred tax assets (liabilities) included in the accompanying consolidated balance sheets are as follows:
(in thousands) |  | December 31, 2022 |  | December 31, 2021
Assets |  |  |  |
Accrued expenses |  | $ | 38,457 |  |  | $ | 48,433 |
Accounts receivable reserves |  | 2,447 |  |  | 2,131 |
Deferred revenue |  | 4,671 |  |  | 6,269 |
Inventory basis differences |  | 9,062 |  |  | 6,553 |
Property-based differences |  | 20,157 |  |  | 16,132 |
Intangible asset basis differences |  | 44,196 |  |  | 46,606 |
Share-based compensation |  | 11,324 |  |  | 10,740 |
Other |  | 1,273 |  |  | 1,163 |
Net operating loss carryforwards |  | 8,956 |  |  | 8,570 |
Tax credit carryforwards |  | 13,370 |  |  | 13,483 |
Unrealized losses on foreign currency exchange contracts and investments |  | 227 |  |  | 1,755 |
Research and development expenditure differences |  | 29,997 |  |  | — |
Total assets |  | 184,137 |  |  | 161,835 |
Valuation allowance |  | (39,726) |  |  | (39,280) |
Total assets, net of valuation allowance |  | 144,411 |  |  | 122,555 |
Liabilities |  |  |  |
Customer acquisition costs |  | (37,223) |  |  | (37,265) |
Property-based differences |  | (44,295) |  |  | (42,363) |
Intangible asset basis differences |  | (2,379) |  |  | (17,345) |
Other |  | (8,958) |  |  | (5,662) |
Unrealized gains on foreign currency exchange contracts and investments |  | (4,491) |  |  | (4,071) |
Total liabilities |  | (97,346) |  |  | (106,706) |
Net deferred tax assets |  | $ | 47,065 |  |  | $ | 15,849 |
As of December 31, 2022, we recorded 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,
|  | 2022 |  | 2021 |  | 2020
Balance at beginning of year |  | $ | 39,280 |  |  | $ | 40,262 |  |  | $ | 9,454 |
Charges to costs and expense |  | 2,200 |  |  | 1,464 |  |  | 31,076 |
Write-off/cash payments |  | (1,537) |  |  | (1,182) |  |  | (34) |
Foreign currency translation |  | (217) |  |  | (1,264) |  |  | (234) |
Balance at the end of the year |  | $ | 39,726 |  |  | $ | 39,280 |  |  | $ | 40,262 |
As of December 31, 2022, we have NOLs in certain state and international jurisdictions of approximately $34.1 million available to offset future taxable income. Most of these NOLs will expire at various dates between 2023 and 2029 and the remainder have indefinite lives. The following table summarizes the changes in unrecognized tax positions:
(in thousands) |  | For the Years Ended December 31,
|  | 2022 |  | 2021 |  | 2020
Total amounts of unrecognized tax benefits, beginning of period |  | $ | 21,789 |  |  | $ | 22,484 |  |  | $ | 26,841 |
Gross increases (decreases) in unrecognized tax positions as a result of tax positions taken during a prior period |  | 342 |  |  | 443 |  |  | (1,755) |
Gross increases in unrecognized tax positions as a result of tax positions taken in the current period |  | 3,197 |  |  | 2,414 |  |  | 4,199 |
Decreases in unrecognized tax positions related to settlements with taxing authorities |  | (1,544) |  |  | (537) |  |  | (6,446) |
Decreases in unrecognized tax positions as a result of a lapse of the applicable statutes of limitations |  | (1,237) |  |  | (3,015) |  |  | (355) |
Total amounts of unrecognized tax benefits, end of period |  | $ | 22,547 |  |  | $ | 21,789 |  |  | $ | 22,484 |
Of the total unrecognized tax benefits at December 31, 2022 and 2021, $20.9 million and $22.2 million, respectively, comprise unrecognized tax positions that would, if recognized, affect our effective tax rate. During the years ended December 31, 2022, 2021, and 2020, we recorded interest expense and penalties of $1.3 million, $1.1 million, and $1.3 million, respectively, as income tax expense in our consolidated statement of income. At December 31, 2022, 2021, and 2020, we had $4.2 million, $3.8 million, and $3.6 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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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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