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Income Taxes | 2 Months Ended
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Jun. 30, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 9: INCOME TAXES We file a consolidated federal income tax return in the U.S. with the IRS and file tax returns in various state, local, and foreign jurisdictions. Tax returns are typically examined and either settled upon completion of the examination or through the appeals process. With respect to federal, state and local jurisdictions and countries outside of the U.S., we are typically subject to examination for three to six years after the income tax returns have been filed. On November 7, 2022, the IRS commenced their examination of our 2020 tax return and related carryback claims to tax years 2015 through 2018. Our U.S. federal income tax returns for tax years 2014 and prior are closed. Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest, and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to federal, state, local or foreign audits. The components of income from continuing operations upon which domestic and foreign income taxes have been provided are as follows:
(in 000s)
Year ended June 30, |  | 2024 |  | 2023 |  | 2022
Domestic |  | $ | 489,912 |  |  | $ | 447,900 |  |  | $ | 478,166 |
Foreign |  | 272,410 |  |  | 263,312 |  |  | 180,903 |
|  | $ | 762,322 |  |  | $ | 711,212 |  |  | $ | 659,069 |
We operate in multiple income tax jurisdictions both within the U.S. and internationally. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on transfer pricing analyses of comparable companies and predictions of future economic conditions. Although these intercompany transactions reflect arm’s length terms and the proper transfer pricing documentation is in place, transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates. The reconciliation between the statutory U.S. federal tax rate and our effective tax rate from continuing operations is as follows:
Year ended June 30, |  | 2024 |  | 2023 |  | 2022
U.S. statutory tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Change in tax rate resulting from: |  |  |  |  |  |
State income taxes, net of federal income tax benefit |  | 1.4 | % |  | 1.6 | % |  | 2.1 | %
Earnings taxed in foreign jurisdictions |  | (1.9) | % |  | (2.9) | % |  | (2.4) | %
Permanent differences |  | 0.7 | % |  | 0.6 | % |  | 0.9 | %
Uncertain tax positions |  | (0.4) | % |  | (0.9) | % |  | (6.3) | %
U.S. tax on income from foreign affiliates |  | 4.1 | % |  | 3.1 | % |  | 2.0 | %
Federal income tax credits |  | (2.4) | % |  | (1.3) | % |  | (2.6) | %
Foreign investment recapture |  | 2.6 | % |  | — | % |  | 0.6 | %
Change in valuation allowance - domestic |  | — | % |  | (0.4) | % |  | 0.2 | %
Change in valuation allowance - foreign |  | (2.8) | % |  | 0.7 | % |  | (0.3) | %
Other |  | (0.7) | % |  | (0.5) | % |  | (0.3) | %
Effective tax rate |  | 21.6 | % |  | 21.0 | % |  | 14.9 | %
The components of income tax expense for continuing operations are as follows:
(in 000s) |  |
Year ended June 30, |  | 2024 |  | 2023 |  | 2022 |  |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | 191,664 |  |  | $ | 97,430 |  |  | $ | 121,319 |  |  |
State |  | 9,695 |  |  | 19,023 |  |  | 25,108 |  |  |
Foreign |  | 18,240 |  |  | 18,214 |  |  | 8,956 |  |  |
|  | 219,599 |  |  | 134,667 |  |  | 155,383 |  |  |
Deferred: |  |  |  |  |  |  |  |
Federal |  | (59,441) |  |  | 23,367 |  |  | (58,487) |  |  |
State |  | (11,749) |  |  | 1,860 |  |  | (2,016) |  |  |
Foreign |  | 15,950 |  |  | (10,482) |  |  | 3,543 |  |  |
|  | (55,240) |  |  | 14,745 |  |  | (56,960) |  |  |
Total income taxes for continuing operations |  | $ | 164,359 |  |  | $ | 149,412 |  |  | $ | 98,423 |  |  |
We account for income taxes under the asset and liability method, which requires us to record deferred income tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and their respective tax basis. Deferred taxes are determined separately for each tax-paying component within each tax jurisdiction based on provisions of enacted tax law. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record a valuation allowance to reduce our deferred tax assets to the estimated amount that we believe is more likely than not to be realized. Determination of a valuation allowance for deferred tax assets requires that we make judgments about future matters that are not certain, including projections of future taxable income and evaluating potential tax-planning strategies. The significant components of deferred tax assets and liabilities are reflected in the following table:
(in 000s)
As of |  | June 30, 2024 |  | June 30, 2023
Deferred tax assets: |  |  |  |
Accrued expenses |  | $ | 3,796 |  |  | $ | 2,540 |
Deferred revenue |  | 50,944 |  |  | 17,702 |
Allowance for credit losses |  | 30,581 |  |  | 22,715 |
Deferred and stock-based compensation |  | 8,060 |  |  | 6,629 |
Net operating loss carry-forward |  | 63,398 |  |  | 116,956 |
Lease liabilities |  | 117,483 |  |  | 111,721 |
Federal tax benefits related to state unrecognized tax benefits |  | 26,841 |  |  | 22,037 |
Property and equipment |  | 2,260 |  |  | — |
Internally developed software |  | 15,063 |  |  | — |
Intangibles - intellectual property |  | 71,367 |  |  | 80,879 |
Valuation allowance |  | (16,569) |  |  | (57,566) |
Total deferred tax assets |  | 373,224 |  |  | 323,613 |
Deferred tax liabilities: |  |  |  |
Prepaid expenses and other |  | (3,001) |  |  | (5,954) |
Lease right of use assets |  | (115,128) |  |  | (109,814) |
Property and equipment |  | — |  |  | (1,421) |
Income tax method change |  | — |  |  | (1,018) |
Intangibles |  | (51,398) |  |  | (56,651) |
Total deferred tax liabilities |  | (169,527) |  |  | (174,858) |
Net deferred tax assets |  | $ | 203,697 |  |  | $ | 148,755 |
A reconciliation of the deferred tax assets and liabilities and the corresponding amounts reported in the consolidated balance sheets is as follows:
(in 000s)
As of |  | June 30, 2024 |  | June 30, 2023
Deferred income tax assets |  | $ | 203,697 |  |  | $ | 152,699 |
Deferred tax liabilities |  | — |  |  | (3,944) |
Net deferred tax asset |  | $ | 203,697 |  |  | $ | 148,755 |
Changes in our valuation allowance for fiscal years 2024, 2023 and 2022 are as follows:
(in 000s)
Year ended June 30, |  | 2024 |  | 2023 |  | 2022
Balance, beginning of the year |  | $ | 57,566 |  |  | $ | 55,172 |  |  | $ | 55,784 |
Additions charged to costs and expenses |  | 4,584 |  |  | 6,438 |  |  | 4,752 |
Deductions |  | (45,581) |  |  | (4,044) |  |  | (5,364) |
Balance, end of the year |  | $ | 16,569 |  |  | $ | 57,566 |  |  | $ | 55,172 |
Our valuation allowance on deferred tax assets has a net decrease of $41.0 million during the current period. The $4.6 million of additions charged to costs and expenses were due to net operating loss deferred tax assets generated by current year foreign and domestic losses that we do not expect to utilize in future years. This increase is offset by a $45.6 million decrease for adjustments to certain foreign net operating losses utilized in the current fiscal year or for adjustments to net operating losses that are no longer available due to expiration. Of the net $41.0 million decrease in valuation allowance, $21.6 million impacted the effective tax rate due to state and foreign net operating losses we were able to utilize in the current period or now expect to utilize in future periods. The remaining $19.4 million decrease in valuation allowance was offset by decreases to net operating loss deferred tax assets and therefore did not impact the effective tax rate. Certain of our subsidiaries file stand-alone returns in various state, local and foreign jurisdictions, and others join in filing consolidated or combined returns in such jurisdictions. As of June 30, 2024, we had net operating losses of $63.4 million in various states and foreign jurisdictions. The amount of state and foreign net operating losses varies by taxing jurisdiction. We maintain a valuation allowance of $5.6 million on state net operating losses and $5.6 million on foreign net operating losses for the portion of such loses that, more likely than not, will not be realized. Of the total net operating loss deferred tax assets, $52.2 million are more likely than not to be realized. Net operating loss deferred tax assets of $11.2 million will expire in varying amounts during fiscal years 2025 through 2042 and the remaining $52.2 million have no expiration. We do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries in a manner that would trigger a tax liability; therefore, no provision has been made for income taxes that might be payable upon remittance of such earnings. The amount of unrecognized tax liability on these foreign earnings, net of expected foreign tax credits, is immaterial as of June 30, 2024. Changes in unrecognized tax benefits for fiscal years 2024, 2023 and 2022 are as follows:
(in 000s)
Year ended June 30, |  | 2024 |  | 2023 |  | 2022
Balance, beginning of the year |  | $ | 240,063 |  |  | $ | 232,004 |  |  | $ | 264,323 |
Additions based on tax positions related to prior years |  | 1,232 |  |  | 1,252 |  |  | 2,499 |
Reductions based on tax positions related to prior years |  | (4,604) |  |  | — |  |  | (5,332) |
Additions based on tax positions related to the current year |  | 37,063 |  |  | 33,330 |  |  | 32,948 |
Reductions related to settlements with tax authorities |  | (4,472) |  |  | (661) |  |  | (9,800) |
Expiration of statute of limitations |  | (17,495) |  |  | (25,862) |  |  | (52,634) |
Balance, end of the year |  | $ | 251,787 |  |  | $ | 240,063 |  |  | $ | 232,004 |
Included in the total gross unrecognized tax benefit ending balance as of June 30, 2024, 2023 and 2022 are $207.5 million, $209.0 million and $203.7 million respectively, which if recognized, would impact our effective tax rate. Increases from prior year are primarily related to additions based on current year tax positions offset by expirations of statute of limitations and settlements with taxing authorities. We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $122.0 million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations, anticipated closure of various tax matters currently under examination, and settlements with tax authorities. For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included. Interest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. The total gross interest recorded to income tax expense for periods ending June 30, 2024, 2023 and 2022 totaled $14.1 million, $10.1 million and $3.7 million, respectively. The total penalties, if any, recorded for the same periods were immaterial. The total gross interest and penalties accrued as of June 30, 2024 and 2023 totaled $42.0 million and $32.6 million, respectively.

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