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Income Taxes | 12 Months Ended
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Aug. 31, 2019
Income Taxes [Abstract] |
Income Taxes | Note 13. Income Taxes Income before income taxes consisted of the following (in thousands):
| Fiscal Year Ended August 31,
| 2019 |  | 2018 |  | 2017
United States | $ | 47,962 |  | $ | 42,634 |  | $ | 42,060
Foreign (1) |  | 32,808 |  |  | 32,544 |  |  | 32,562
Income before income taxes | $ | 80,770 |  | $ | 75,178 |  | $ | 74,622
(1)Included in these amounts are income before income taxes for the EMEA segment of $26.6 million, $27.4 million and $28.1 million for the fiscal years ended August 31, 2019, 2018 and 2017, respectively. The provision for income taxes consisted of the following (in thousands):
| Fiscal Year Ended August 31,
| 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |  |  |  |
Federal | $ | 15,591 |  | $ | 10,100 |  | $ | 10,813
State |  | 800 |  |  | 651 |  |  | 744
Foreign |  | 7,679 |  |  | 6,750 |  |  | 7,465
Total current |  | 24,070 |  |  | 17,501 |  |  | 19,022
Deferred: |  |  |  |  |  |  |  |
United States |  | 843 |  |  | (7,496) |  |  | 2,627
Foreign |  | (51) |  |  | (42) |  |  | 43
Total deferred |  | 792 |  |  | (7,538) |  |  | 2,670
Provision for income taxes | $ | 24,862 |  | $ | 9,963 |  | $ | 21,692
Deferred tax assets and deferred tax liabilities consisted of the following (in thousands):
| August 31, |  | August 31,
| 2019 |  | 2018
Deferred tax assets: |  |  |  |  |
Accrued payroll and related expenses | $ | 794 |  | $ | 916
Accounts receivable |  | 325 |  |  | 303
Reserves and accruals |  | 1,145 |  |  | 1,496
Stock-based compensation expense |  | 1,990 |  |  | 2,321
Uniform capitalization |  | 1,084 |  |  | 959
Tax credit carryforwards |  | 2,827 |  |  | 2,790
Other |  | 1,034 |  |  | 938
Total gross deferred tax assets |  | 9,199 |  |  | 9,723
Valuation allowance |  | (2,827) |  |  | (2,505)
Total net deferred tax assets |  | 6,372 |  |  | 7,218
Deferred tax liabilities: |  |  |  |  |
Property and equipment, net |  | (1,609) |  |  | (1,305)
Amortization of tax goodwill and intangible assets |  | (15,373) |  |  | (16,108)
Investments in partnerships |  | (83) |  |  | (222)
Other |  | (592) |  |  | (122)
Total deferred tax liabilities |  | (17,657) |  |  | (17,757)
Net deferred tax liabilities | $ | (11,285) |  | $ | (10,539)
The Company had state net operating loss (“NOL”) carryforwards of $4.8 million and $3.0 million as of August 31, 2019 and 2018, respectively, which generated a net deferred tax asset of $0.2 million as of both August 31, 2019 and 2018. The state NOL carryforwards, if unused, will expire between fiscal year 2020 and 2039. The Company also had tax credit carryforwards of $2.8 million as of both August 31, 2019 and 2018, of which $2.6 million and $2.5 million, respectively, is attributable to U.K. tax credit carryforwards, which do not expire. Future utilization of the U.K. tax credit carryforwards and certain state credit carryforwards is uncertain and is dependent upon several factors that may not occur, including the generation of future taxable income in certain jurisdictions. At this time, management cannot conclude that it is “more likely than not” that the related deferred tax assets will be realized. Accordingly, a full valuation allowance has been recorded against the related deferred tax asset associated with the U.K. tax credit carryforwards and certain state credit carryforwards. A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows (in thousands):
| Fiscal Year Ended August 31,
| 2019 |  | 2018 |  | 2017
Amount computed at U.S. statutory federal tax rate | $ | 16,962 |  | $ | 19,298 |  | $ | 26,118
State income taxes, net of federal tax benefits |  | 963 |  |  | 453 |  |  | 327
Effect of foreign operations |  | (1,086) |  |  | (1,412) |  |  | (4,277)
Benefit from qualified domestic production deduction |  | - |  |  | (1,121) |  |  | (1,295)
Tax Cuts and Jobs Act: |  |  |  |  |  |  |  |
Remeasurement of deferred income taxes |  | - |  |  | (6,762) |  |  | -
Toll tax, net of foreign tax credits |  | 8,665 |  |  | (282) |  |  | -
Benefit from stock compensation |  | (1,107) |  |  | (725) |  |  | -
Other |  | 465 |  |  | 514 |  |  | 819
Provision for income taxes | $ | 24,862 |  | $ | 9,963 |  | $ | 21,692
On December 20, 2017 the United States House of Representatives and the Senate passed the “Tax Cuts and Jobs Act” (the “Tax Act”), which was signed into law on December 22, 2017 and became effective beginning January 1, 2018. Due to the complexity of the Tax Act, the SEC issued guidance in SAB 118 which clarified the accounting for income taxes under ASC 740 if certain information was not yet available, prepared or analyzed in reasonable detail to complete the accounting for income tax effects of the Tax Act. SAB 118 provided for a measurement period of up to one year after the enactment of the Tax Act, during which time the required analyses and accounting must have been completed. During the measurement period, provisional amounts must have been reported for income tax effects of the Tax Act for which the accounting was incomplete but a reasonable estimate could be determined. During fiscal year 2018, the Company recorded provisional amounts for the income tax effects of the changes in tax law and tax rates during this measurement period. The Company did not significantly adjust these provisional amounts from the beginning of fiscal year 2019 through the end of the SAB 118 measurement period which occurred during the second quarter of the Company’s fiscal year 2019. Although the Company no longer considers these amounts to be provisional, the determination of the Tax Act’s income tax effects remains subject to change following subsequent legislation, further interpretation of the Tax Act based on the publication of U.S. Treasury regulations, or guidance from the Internal Revenue Service and state tax authorities. In November 2018, subsequent to the filing of the Company’s federal income tax return, the U.S. Treasury released proposed regulations that were subsequently finalized in June 2019. These regulations specifically address, and are inconsistent with, the Company’s position regarding the availability of the dividends received deduction for deemed foreign dividends recorded in fiscal 2018 associated with the Tax Act’s mandatory one-time “toll tax” on unremitted foreign earnings. During July 2019, the Company completed its assessment of these final regulations. Due to the uncertainty created by these regulations, the Company recorded a reserve for an uncertain tax position in the fourth quarter of its fiscal year 2019 in the amount of $8.7 million, inclusive of accrued interest of approximately $0.4 million. This uncertain tax position represents the tax liability that would be imposed if these final regulations are enforced. This liability reserve increased the Company’s provision for income taxes and lowered its net income for the year ending August 31, 2019. Management has assessed other fiscal year 2019 impacts of the Tax Act and has determined that the Company has lost the benefit from the Domestic Production Activities Deduction. However, the Company has also acquired certain net benefits beginning in fiscal year 2019 from the favorable impacts of the Foreign Derived Intangible Income (“FDII”) section of the Tax Act, partially offset by the unfavorable impacts of the Global Intangible Low-Taxed Income (“GILTI”). Another significant section of the Tax Act, the Base Erosion Anti-Abuse Tax (“BEAT”), does not apply to the Company’s fiscal year 2019 as the Company does not meet the minimum revenue requirements under the BEAT. The Company will continue to evaluate the BEAT to determine whether it will have any significant impact on the Company’s consolidated financial statements in future years. The Tax Act requires taxpayers to elect an accounting method for expenses allocated to the GILTI calculation. As ASC 740, Income Taxes, does not directly address the accounting for GILTI, the FASB staff concluded that entities must make an accounting policy election to either: (1) treat GILTI as a period cost if and when incurred, or (2) recognize deferred taxes for basis differences that are expected to reverse as GILTI in future years. During the first quarter of fiscal year 2019, management made the accounting policy election to account for GILTI as a current period cost included in tax expense in the year incurred The provision for income taxes was 30.8% and 13.3% of income before income taxes for the fiscal years ended August 31, 2019 and 2018, respectively. The increase in the effective income tax rate from period to period was primarily due to the uncertain tax position in the amount of $8.7 million related to the toll tax that was recorded in the fourth quarter of fiscal year 2019. In addition, the remeasurement of deferred income taxes related to the Tax Act, which was recorded as a provisional benefit and discrete item in fiscal year 2018, resulted in a favorable impact of $6.8 million to the Company’s fiscal year 2018 effective income tax rate. These one-time impacts resulted in a significantly higher fiscal year 2019 effective income tax rate compared to the prior fiscal year. In addition, the effective income tax rate for both fiscal years 2019 and 2018 were favorably impacted by the Tax Act’s lower statutory tax rate. As the Company’s fiscal year ends on August 31st, the Tax Act resulted in a blended federal statutory tax rate of 25.7% for fiscal year 2018. For fiscal year 2019, however, the Tax Act was in effect for the Company’s full year and resulted in a federal statutory tax rate for the year of 21%. The tax rate was also favorably impacted in fiscal year 2019 by the net benefit received from the application of the GILTI and FDII calculations which were partially offset by the loss of the Domestic Production Activities Deduction. Reconciliations of the beginning and ending amounts of the Company’s gross unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):
| Fiscal Year Ended August 31,
| 2019 |  | 2018
Unrecognized tax benefits - beginning of fiscal year | $ | 1,038 |  | $ | 981
Net increases (decreases) - prior period tax positions |  | 8,301 |  |  | 62
Net increases - current period tax positions |  | 210 |  |  | 263
Expirations of statute of limitations for assessment |  | (165) |  |  | (197)
Settlements |  | - |  |  | (71)
Unrecognized tax benefits - end of fiscal year | $ | 9,384 |  | $ | 1,038
Gross unrecognized tax benefits totaled $9.4 million and $1.0 million for the fiscal years ended August 31, 2019 and 2018, respectively, of which $9.2 million and $0.9 million, respectively, would affect the Company’s effective income tax rate if recognized. Interest and penalties related to uncertain tax positions included in tax expense was $0.4 million for the fiscal year ended August 31, 2019, entirely related to the toll tax liability reserve accrued in the fourth quarter of fiscal year 2019. There were no significant interest or penalties included in income tax expense for the fiscal year ended August 31, 2018. The total balance of accrued interest and penalties related to uncertain tax positions was $0.4 million for the fiscal year ended August 31, 2019 and was not significant for the fiscal year ended August 31, 2018. The Company is subject to taxation in the U.S. and in various state and foreign jurisdictions. Due to expired statutes and closed audits, the Company’s federal income tax returns for years prior to fiscal year 2016 are not subject to examination by the U.S. Internal Revenue Service. Generally, for the majority of state and foreign jurisdictions where the Company does business, periods prior to fiscal year 2015 are no longer subject to examination. The Company has estimated that up to $0.3 million of unrecognized tax benefits related to income tax positions may be affected by the resolution of tax examinations or expiring statutes of limitation within the next twelve months. Audit outcomes and the timing of settlements are subject to significant uncertainty.

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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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