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Income Taxes | 12 Months Ended
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Oct. 03, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Company’s income (loss) before provision for income taxes for fiscal 2020, 2019 and 2018 were as follows:
| October 3, 2020 |  | September 28, 2019 |  | September 29, 2018
(In thousands)
Domestic | $ | (15,194) |  |  | $ | (858) |  |  | $ | 2,803 |
Foreign | (4,889) |  |  | (218) |  |  | (17,351) |
Loss before provision for income taxes | $ | (20,083) |  |  | $ | (1,076) |  |  | $ | (14,548) |
Components of the provision for income taxes consisted of the following:
| October 3, 2020 |  | September 28, 2019 |  | September 29, 2018
(In thousands)
Current: |  |  |  |  |
U.S. Federal | $ | (1,388) |  |  | $ | 1,366 |  |  | $ | — |
U.S. State | 724 |  |  | 1,132 |  |  | 177 |
Foreign | 1,220 |  |  | 1,463 |  |  | 816 |
Total current | 556 |  |  | 3,961 |  |  | 993 |
Deferred: |  |  |  |  |
U.S. Federal | — |  |  | — |  |  | (168) |
U.S. State | — |  |  | — |  |  | — |
Foreign | (524) |  |  | (271) |  |  | 231 |
Total deferred | (524) |  |  | (271) |  |  | 63 |
Provision for (benefit from) income taxes | $ | 32 |  |  | $ | 3,690 |  |  | $ | 1,056 |
The Company is subject to income taxes in the U.S. and foreign jurisdictions in which it operates. The Company’s tax provision is impacted by the jurisdictional mix of earnings as its foreign subsidiaries have statutory tax rates different from those in the U.S. The Company has made an accounting policy election to treat Global Intangible Low Taxed Income (“GILTI”) as a period expense. The Company's accounting for the elements of U.S. Tax Reform is completed based on all published tax law and corresponding guidance. However. proposed and final clarifying guidance is anticipated for various aspects of U.S. Tax Reforms which could be relevant to the Company. The effects of any additional guidance will be recorded in the period such guidance is issued. Components of the Company’s deferred income tax assets and liabilities are as follows:
| October 3, 2020 |  | September 28, 2019
(In thousands)
Deferred tax assets |  |  |
Accrued expenses and reserves | $ | 12,014 |  |  | $ | 12,582 |
Deferred revenue | 11,831 |  |  | 11,185 |
U.S. net operating loss carryforwards | 8,242 |  |  | 15,112 |
Foreign net operating loss carryforwards | 12,183 |  |  | 3,414 |
Tax credit carryforwards | 53,543 |  |  | 43,411 |
Stock-based compensation | 11,018 |  |  | 10,368 |
Right-of-Use Liability | 14,377 |  |  | — |
Amortization | 7,648 |  |  | 4,131 |
Depreciation | 1,101 |  |  | 672 |
Other | 603 |  |  | 453 |
Total deferred tax assets | 132,560 |  |  | 101,328 |
Valuation allowance | (113,939) |  |  | (95,088) |
Deferred tax assets, net of valuation allowance | 18,621 |  |  | 6,240 |
Deferred tax liabilities |  |  |
Tax accounting method change | (2,946) |  |  | (5,086) |
Right-of-Use Asset | (9,914) |  |  | — |
Amortization | (6,093) |  |  | — |
Depreciation | (187) |  |  | — |
Other | (115) |  |  | — |
Total deferred tax liabilities | (19,255) |  |  | (5,086) |
Net deferred tax assets (liabilities) | $ | (634) |  |  | $ | 1,154 |
Reported as |  |  |
Deferred tax assets | $ | 1,800 |  |  | $ | 1,154 |
Deferred tax liabilities | (2,434) |  |  | — |
Net deferred tax assets (liabilities) | $ | (634) |  |  | $ | 1,154 |
After considering all available positive and negative evidence, the Company has determined it is more likely than not that deferred tax assets in the U.S. and certain foreign entities will not be realized as a result of cumulative book losses incurred in these jurisdictions. Therefore, the Company maintains a full valuation allowance against the net deferred tax assets in these jurisdictions. It is possible that within the next 12 months there may be sufficient positive evidence to release a portion or all of the valuation allowance. Release of the U.S. valuation allowance would result in a benefit to income tax expense for the period the release is recorded, which could have a material impact on net earnings. The timing and amount of the potential valuation allowance release are subject to significant management judgment and prospective earnings in the U.S. As of October 3, 2020, the Company had gross federal and post-apportioned state net operating loss carryforwards of $30.8 million and $26.9 million, respectively, available to reduce future taxable income. The earliest federal and state net operating loss carryforwards expire in varying amounts beginning in 2035 and 2027, respectively. As of October 3, 2020, the Company had gross foreign net operating loss carryforwards of $52.2 million, of which $37.6 million have an indefinite life and $14.6 million will expire in 2027. The Company also has gross federal and state research and development tax credit carryforwards of $41.8 million and $31.8 million, respectively. The federal research credits will begin to expire in the year 2025, and the state research credits will begin to expire in the year 2024. Because of the change of ownership provisions of Sections 382 and 383 of the Code, use of a portion of the Company’s domestic net operating losses and tax credit carryforwards may be limited in future periods depending upon future changes in ownership. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities if sufficient taxable income is not generated in future periods. The following table summarizes changes in the valuation allowance for fiscal 2020, 2019 and 2018:
(In thousands) | October 3, 2020 |  | September 28, 2019 |  | September 29, 2018
Beginning balance | $ | 95,088 |  |  | $ | 72,380 |  |  | $ | 94,956 |
Increase (decrease) during the period | 18,851 |  |  | 22,708 |  |  | (22,576) |
Ending balance | $ | 113,939 |  |  | $ | 95,088 |  |  | $ | 72,380 |
Reconciliation of U.S. statutory federal income taxes to the Company’s provision for (benefit from) income taxes is as follows:
(In thousands) | October 3, 2020 |  | September 28, 2019 |  | September 29, 2018
U.S. federal income taxes at statutory rate | $ | (4,217) |  |  | $ | (226) |  |  | $ | (3,570) |
U.S. state and local income taxes | (2,798) |  |  | (9,315) |  |  | (1,441) |
Foreign income tax rate differential | (75) |  |  | 129 |  |  | (53) |
Stock-based compensation | 869 |  |  | (2,399) |  |  | 4,025 |
Federal research tax credits | (8,012) |  |  | (8,418) |  |  | (4,333) |
Unrecognized federal tax benefits | 815 |  |  | (2,806) |  |  | 1,990 |
Change in tax rate | — |  |  | 1,161 |  |  | 25,725 |
Net Impact of GILTI | — |  |  | 239 |  |  | — |
BEAT | (781) |  |  | 781 |  |  | — |
Other | 598 |  |  | 822 |  |  | 259 |
Change in valuation allowance | 13,633 |  |  | 23,722 |  |  | (21,546) |
Provision for income taxes | $ | 32 |  |  | $ | 3,690 |  |  | $ | 1,056 |
In January 2017, the Company entered into a unilateral Advance Pricing Agreement (the "APA") with the Dutch Tax Administration. The APA establishes an intercompany licensing arrangement whereby the operating profit or loss, as determined under U.S. GAAP, of Sonos Europe B.V. and Sonos, Inc. will be allocated between the two companies based on relative contribution to the development of marketing and technology intangibles. The APA has a five-year term that commenced on October 2, 2016 and ends on September 30, 2021. Change in unrecognized tax benefits as a result of uncertain tax positions are as follows:
| October 3, 2020 |  | September 28, 2019 |  | September 29, 2018
(In thousands) |  |
Beginning balance | $ | 12,527 |  |  | $ | 17,794 |  |  | $ | 13,780 |
Increase (decrease) - tax positions in prior periods | (768) |  |  | (8,226) |  |  | $ | 636 |
Increase (decrease) - tax positions in current periods | 2,962 |  |  | 2,959 |  |  | $ | 3,378 |
Ending balance | $ | 14,721 |  |  | $ | 12,527 |  |  | $ | 17,794 |
The Company does not anticipate changes to unrecognized benefits within the next 12 months that would result in a material change to the Company’s financial position. The unrecognized tax benefits as of October 3, 2020 would have no impact on the effective tax rate if recognized. The Company conducts business in a number of tax jurisdictions and, as such, is required to file income tax returns in multiple jurisdictions globally. U.S. federal income tax returns for the 2016 tax year and earlier are no longer subject to examination by the U.S. Internal Revenue Service (the "IRS"). All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and state purposes. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. There were no accrued interest or penalties as of October 3, 2020 and September 28, 2019. As of October 3, 2020, we continue to assert that the unremitted earnings in our foreign subsidiaries are permanently reinvested and therefore no deferred taxes or withholding taxes have been provided. If, in the future, the Company decides to repatriate its $7.9 million of undistributed earnings from these subsidiaries in the form of dividends or otherwise, the Company could be subject to withholding taxes payable at that time. The amount of withholding tax liability is dependent upon circumstances existing if and when a remittance occurs but could be reasonably estimated to be $0.2 million.

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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 http://asc.fasb.org/extlink&oid=84230637&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 http://asc.fasb.org/extlink&oid=116825942&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 http://asc.fasb.org/extlink&oid=84230637&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 http://asc.fasb.org/extlink&oid=116825942&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 http://asc.fasb.org/extlink&oid=84230637&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 http://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 http://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 http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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