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Income taxes | 12 Months Ended
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Jan. 31, 2020
Income Tax Disclosure [Abstract] |
Income taxes | Income taxes The income tax provision consisted of the following:
|  | Year ended January 31, |  |  |  |
(in thousands) |  | 2020 |  | 2019 |  | 2018
Current: |  |  |  |  |  |
Federal |  | $ | (448) |  |  | $ | 1,095 |  |  | $ | 392 |
State |  | 274 |  |  | 416 |  |  | 130 |
Total current tax provision (benefit) |  | $ | (174) |  |  | $ | 1,511 |  |  | $ | 522 |
Deferred: |  |  |  |  |  |
Federal |  | $ | 3,538 |  |  | $ | 1,258 |  |  | $ | 4,068 |
State |  | 127 |  |  | (850) |  |  | 237 |
Total deferred tax provision |  | $ | 3,665 |  |  | $ | 408 |  |  | $ | 4,305 |
Total income tax provision |  | $ | 3,491 |  |  | $ | 1,919 |  |  | $ | 4,827 |
Total income tax provision differed from the amounts computed by applying the U.S. federal statutory income tax rate to income before income taxes as a result of the following:
|  | Year ended January 31, |  |  |  |
(in thousands) |  | 2020 |  | 2019 |  | 2018
Federal income tax expense at the statutory rate |  | $ | 9,063 |  |  | $ | 15,922 |  |  | $ | 17,744 |
State income tax expense, net of federal tax benefit |  | 960 |  |  | 1,518 |  |  | 1,241 |
Other non-deductible or non-taxable items, net |  | 798 |  |  | 251 |  |  | 143 |
Excessive employee remuneration |  | 2,117 |  |  | 160 |  |  | — |
Excess tax benefits on stock-based compensation expense, net |  | (4,815) |  |  | (14,255) |  |  | (14,136) |
Federal research and development credits |  | (2,296) |  |  | (2,252) |  |  | (729) |
Change in uncertain tax position reserves, net of indirect benefits |  | 491 |  |  | 450 |  |  | 191 |
Non-deductible acquisition-related costs |  | 3,032 |  |  | — |  |  | — |
Non-taxable gain on investment in subsidiary |  | (5,790) |  |  | — |  |  | — |
Deferred tax rate adjustment due to tax reform |  | — |  |  | — |  |  | 458 |
Current statutory rate differential due to tax reform |  | — |  |  | — |  |  | (308) |
Other items, net |  | (69) |  |  |  | 125 |  |  |  | 223 |
Total income tax provision |  | $ | 3,491 |  |  | $ | 1,919 |  |  | $ | 4,827 |
The Company’s effective income tax rate for the years ended January 31, 2020, 2019 and 2018 was 8.1%, 2.5%, and 9.2%, respectively. The difference between the effective income tax rate and the U.S. federal statutory income tax rate each period is impacted by a number of factors, including the relative mix of earnings among state jurisdictions, credits, excess tax benefits or shortfalls on stock-based compensation expense due to the adoption of ASU 2016-09, and other discrete items. The increase in the effective tax rate for the year ended January 31, 2020 over the year ended January 31, 2019 was primarily due to a decrease in excess tax benefits on stock-based compensation expense recognized in the provision for income taxes relative to pre-tax income and an increase in non-deductible expenses, which were offset by exclusion of the gain in connection with our equity investment in WageWorks that will not be realized for income tax purposes. The decrease in the effective tax rate for the year ended January 31, 2019 compared to the year ended January 31, 2018 was primarily due to the reduction in the US federal corporate income tax rate from 35% to 21% as a result of legislative changes effective January 1, 2018 and an increase in federal and state research and development tax credits over prior periods. The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, included a reduction of the statutory corporate income tax rate from a top rate of 35% to 21% effective January 1, 2018. The Company is subject to federal and state income taxes in the United States based on a calendar year which differs from its January fiscal year-end for financial reporting purposes. For purposes of reconciling the total income tax provision for the fiscal year ended January 31, 2018, the Company applied a federal statutory rate of 34% for the entire fiscal year as this was the rate that applies for the tax year ended December 31, 2017 which comprised 11 months of the fiscal year. Because a 21% federal statutory rate applied for the one month ending January 31, 2018, a reconciling item was included in the tax rate reconciliation table above to adjust for the statutory rate reduction that applied to this one-month period. This resulted in a reduction to the income tax provision of $0.3 million. Deferred tax assets and liabilities consisted of the following:
(in thousands) |  | January 31, 2020 |  | January 31, 2019
Deferred tax assets: |  |  |  |
Net operating loss carryforward |  | $ | 1,147 |  |  | $ | 68 |
Stock compensation |  | 10,764 |  |  | 6,987 |
Research and development credits |  | 4,693 |  |  | 2,323 |
Lease liabilities |  | 20,232 |  |  | — |
Deferred rent |  | — |  |  |  | 626 |
Accruals and reserves |  | 6,854 |  |  | 1,503 |
Other, net |  | 2,154 |  |  | 224 |
Total gross deferred tax assets |  | $ | 45,844 |  |  | $ | 11,731 |
Less valuation allowance |  | (203) |  |  |  | (97) |
Deferred tax assets, net of valuation allowance |  | 45,641 |  |  |  | 11,634 |
Deferred tax liabilities: |  |  |  |  |  |  |
Fixed assets |  | (4,875) |  |  |  | (1,294) |
Intangible assets |  | (142,673) |  |  |  | (4,798) |
Incremental contract costs |  | (5,474) |  |  | (4,654) |
Right-of-use assets |  | (21,068) |  |  | — |
Goodwill |  | (1,831) |  |  | — |
Other, net |  | (194) |  |  | (127) |
Total gross deferred tax liabilities |  | (176,115) |  |  | (10,873) |
Net deferred tax asset (liability) |  | $ | (130,474) |  |  | $ | 761 |
Management considered whether it is more likely than not that some portion or all of the deferred tax assets would be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment and determined that based on the weight of all available evidence, it is more likely than not (a likelihood of more than 50%) that the Company will be able to realize most of its deferred tax assets. However, the Company recorded a valuation allowance of $0.2 million and $0.1 million as of January 31, 2020 and January 31, 2019, respectively. The increase in valuation allowance recorded is primarily the result of state tax credits that are not expected to be utilized before they expire. As of January 31, 2020, the Company had recorded gross state net operating loss carryforwards of $20.5 million which begin to expire at various intervals following the tax year ending December 31, 2024. As of January 31, 2020, the Company also had federal and state research and development carryforwards of $3.6 million and $7.8 million, respectively, which begin to expire following the tax years ending December 31, 2038 and 2022, respectively. As of January 31, 2020 and 2019, the gross unrecognized tax benefit was $9.4 million and $1.7 million, respectively. If recognized, $8.6 million and $1.5 million of the total unrecognized tax benefits would affect the Company's effective tax rate as of January 31, 2020 and 2019, respectively. Total gross unrecognized tax benefits increased by $7.7 million in the period from January 31, 2019 to January 31, 2020. A tabular reconciliation of the beginning and ending amount of gross unrecognized tax benefits, including the impact of purchase accounting from the Acquisition, is as follows:
(in thousands) |  | January 31, 2020 |  | January 31, 2019
Gross unrecognized tax benefits at beginning of year |  | $ | 1,693 |  |  | $ | 889 |
Gross amounts of increases and decreases: |  |  |  |  |  |
Increases as a result of tax positions taken during a prior period |  | 6,888 |  |  | — |
Decreases as a result of tax positions taken during a prior period |  | (1) |  |  | (1) |
Increases as a result of tax positions taken during the current period |  | 790 |  |  | 805 |
Decreases as a result of tax positions taken during the current period |  | — |  |  | — |
Decreases resulting from the lapse of the applicable statute of limitations |  | — |  |  | — |
Gross unrecognized tax benefits at end of year |  | $ | 9,370 |  |  | $ | 1,693 |
Certain unrecognized tax benefits are required to be netted against their related deferred tax assets as a result of Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Other unrecognized tax benefits have been netted against existing tax receivable balances where significant overpayments have resulted. The resulting unrecognized tax benefit recorded within the Company's consolidated balance sheet excludes the following amounts that have been netted against the related deferred tax assets or tax receivables accordingly:
(in thousands) |  | January 31, 2020 |  | January 31, 2019
Total gross unrecognized tax benefits |  | $ | 9,370 |  |  | $ | 1,693 |
Amounts netted against related deferred tax assets |  | (8,914) |  |  | (1,693) |
Unrecognized tax benefits recorded on the consolidated balance sheet |  | $ | 456 |  |  | $ | — |
The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a component of other expense in the statement of operations and comprehensive income. During the year ended January 31, 2020, the Company recorded penalties and interest of $0.1 million related to unrecognized tax benefits. There were no interest and penalties recorded related to unrecognized tax benefits during the years ended January 31, 2019 and 2018 in the statement of operations and comprehensive income. As of January 31, 2020, accrued interest and penalties of $0.6 million were recorded, of which $0.5 million related to existing balances from the Acquisition recorded through purchase accounting. As of January 31, 2019, no accrued interest and penalties were recorded. The Company files income tax returns with U.S. federal and state taxing jurisdictions and is not currently under examination with any jurisdiction. As a result of the Company's net operating loss carryforwards and tax credit carryforwards, the Company remains subject to examination by one or more jurisdictions for tax years after 2000.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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