INCOME TAXES

12 Months Ended

Mar. 31, 2021

Income Taxes

The Company’s provision for income taxes was $96,457, $51,854, and $65,214, for the years ended March 31, 2021, 2020, and 2019, respectively. This represents effective tax rates of 23.6%, 22.0%, and 29.1% for the years ended March 31, 2021, 2020, and 2019, respectively.

The provision (benefit) for income taxes on operations for the years ended March 31, 2021, 2020, and 2019 is comprised of the following approximate values:


	Year Ended March 31,
	2021		2020		2019
Current:
Federal	$	71,832	$	39,796	$	47,101
State and local	27,230		10,217		22,094
Foreign	18,632		11,495		6,706
Subtotal	117,694		61,508		75,901
Deferred:
Federal	(16,244)		(6,317)		(10,665)
State and local	(4,543)		(2,104)		(1,997)
Foreign	(450)		(1,233)		1,975
Subtotal	(21,237)		(9,654)		(10,687)
Total	$	96,457	$	51,854	$	65,214

The provision for income taxes on operations for the years ended March 31, 2021, 2020, and 2019 is reconciled to the income taxes computed at the statutory federal income tax rate (computed by applying the federal corporate rate of 21% to consolidated operating income before provision for income taxes) as follows:


	Year Ended March 31,
	2021				2020				2019
Federal income tax provision computed at statutory rate	$	85,937	21.0	%	$	49,486	21.0	%	$	47,107	21.0	%
State and local taxes, net of federal tax effect	18,877		4.6	%	10,819		4.6	%	12,944		5.8	%
Tax impact from foreign operations	(1,036)		(0.2)	%	(1,083)		(0.5)	%	(2,098)		(0.9)	%
Nondeductible expenses	6,004		1.5	%	4,721		2.0	%	3,797		1.7	%

Stock compensation	(13,349)		(3.3)	%	(7,269)		(3.1)	%	(8)		—	%
Uncertain tax positions, true-up items, and other	24		—	%	(4,820)		(2.0)	%	2,159		0.9	%
Enactment of the Tax Act	—		—	%	—		—	%	1,313		0.6	%
Total	$	96,457	23.6	%	$	51,854	22.0	%	$	65,214	29.1	%

Deferred income taxes arise principally from temporary differences between book and tax recognition of income, expenses, and losses relating to financing and other transactions. The deferred income taxes on the accompanying consolidated balance sheets as of March 31, 2021 and March 31, 2020, comprise the following:


	March 31, 2021		March 31, 2020
Deferred tax assets:
Deferred compensation expense/accrued bonus	$	75,140	$	53,397
Allowance for credit losses	1,305		1,078
Accounts receivable and work in progress	2,084		—
US foreign tax credits	2,475		2,478
Operating lease liabilities	31,499		27,977
Other, net	15,686		15,497
Total deferred tax assets	128,189		100,427
Deferred tax asset valuation allowance	(9,783)		(11,097)
Total deferred tax assets	118,406		89,330
Deferred tax liabilities:
Intangibles	(49,913)		(49,166)
Accounts receivable and work in progress	—		(561)
Operating lease right-of-use assets	(27,856)		(25,131)
Other, net	(12,358)		(8,629)
Total deferred tax liabilities	(90,127)		(83,487)
Net deferred tax assets/(liabilities)	$	28,279	$	5,843

The Company has various foreign net operating losses totaling $5,616 that do not expire. A valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. The Company has determined that deferred tax assets related to US foreign tax credits and certain foreign deferred tax assets are not likely to be realized. The Company’s credit carryforwards as of March 31, 2021 were primarily driven as a result of U.S. Tax Reform. The Company assessed the realizability of these foreign tax credits based on currently enacted and proposed legislation issued by the U.S. Department of Treasury and the Internal Revenue Service, and recorded a full valuation allowance of $2,475 and $2,478 against these assets for March 31, 2021 and March 31, 2020, respectively. The Company does not expect to utilize these foreign tax credits in the future as the Company does not currently project future foreign source income. These foreign tax credits will expire in various years through 2030. In addition, certain deferred tax assets related to tax deductible goodwill from previous acquisitions and net operating losses generated from these deductions were not more likely than not realizable; therefore, the Company maintained valuation allowances for March 31, 2021 and March 31, 2020 of $7,308 and $8,619, respectively. The

change in the total valuation allowance was a decrease of $1,314 and a decrease of $272 during the years ended March 31, 2021 and March 31, 2020, respectively.

The Company has historically considered the undistributed earnings of its foreign subsidiaries to be indefinitely reinvested, and, accordingly, no taxes were provided on such earnings prior to the fourth quarter of fiscal 2021. In the fourth quarter of fiscal 2021, we identified $39,000 of cash in certain foreign jurisdictions in excess of near-term working capital needs. This amount may be repatriated in a future period, and therefore, could no longer be considered indefinitely reinvested. With the exception of this potential distribution of historic earnings, the assertion that all undistributed earnings of foreign subsidiaries should be considered indefinitely reinvested remains. Deferred taxes recorded in the fourth quarter of 2021 for the potential distribution were not significant.

We continue to expect that the remaining balance of our undistributed foreign earnings will be indefinitely reinvested. If we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes. Determination of the amount of unrecognized deferred tax liability on these unremitted earning is not practicable.

As of March 31, 2021 and March 31, 2020 the Company had recorded liabilities for interest and penalties related to uncertain tax positions in the amounts of $1,984 and $1,845, net of any future tax benefit of such interest, respectively. Unrecognized tax positions totaled $14,666 and $9,947 as of March 31, 2021 and March 31, 2020, respectively. If the income tax impacts from these tax positions are ultimately realized, such realization would affect the income tax provision and effective tax rate.

A reconciliation of the unrecognized tax position as of March 31, 2021 and March 31, 2020 is as follows:


	March 31, 2021		March 31, 2020
Unrecognized tax position at the beginning of the year	$	9,947	$	4,960
Increase/(decrease) related to prior year tax positions	2,979		(230)
Increases related to tax positions taken in the current year	1,740		5,217
Unrecognized tax position at the end of the year	$	14,666	$	9,947

The Company believes that it is reasonably possible that a decrease of up to $1.3 million in gross unrecognized income tax benefits for federal and state items may be necessary within the next 12 months. For the remaining uncertain income tax positions, it is difficult at this time to estimate the timing of the resolution. In the fourth quarter of fiscal 2021, the statute of limitations on one of our filing state’s income tax audit years March 31, 2016 and March 31, 2017 lapsed, resulting in the release of certain reserves totaling $1.8 million during fiscal 2021.

Prior to the IPO, the Company filed as a member of the ORIX USA consolidated federal income tax group and did so through the date of the IPO for fiscal 2016. Following the IPO, the Company files a consolidated federal income tax return separate from ORIX USA, as well as consolidated and separate returns in state and local jurisdictions. As of March 31, 2020, all of the federal income tax returns filed since 2018 by the Company are still subject to adjustment upon audit. The Company also files combined and separate income tax returns in many states, which are also open to adjustment. The Company is currently under New York City audit for the years ended March 31, 2016, March 31, 2017, and March 31, 2018. Additionally, ORIX USA, is under both New York State and New York City audit for the year ended March 31, 2016.