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Income Taxes | 12 Months Ended
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Oct. 02, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Company’s income (loss) before provision for (benefit from) income taxes for fiscal 2021, 2020 and 2019 were as follows:
| October 2, 2021 |  | October 3, 2020 |  | September 28, 2019
(In thousands)
Domestic | $ | 126,810 |  |  | $ | (15,194) |  |  | $ | (858) |
Foreign | 30,115 |  |  | (4,889) |  |  | (218) |
Income (loss) before provision for (benefit from) income taxes | $ | 156,925 |  |  | $ | (20,083) |  |  | $ | (1,076) |
Components of the provision for (benefit from) income taxes consisted of the following:
| October 2, 2021 |  | October 3, 2020 |  | September 28, 2019
(In thousands)
Current: |  |  |  |  |
U.S. Federal | $ | — |  |  | $ | (1,388) |  |  | $ | 1,366 |
U.S. State | 440 |  |  | 724 |  |  | 1,132 |
Foreign | 6,216 |  |  | 1,220 |  |  | 1,463 |
Total current | 6,656 |  |  | 556 |  |  | 3,961 |
Deferred: |  |  |  |  |
U.S. Federal | — |  |  | — |  |  | — |
U.S. State | — |  |  | — |  |  | — |
Foreign | (8,326) |  |  | (524) |  |  | (271) |
Total deferred | (8,326) |  |  | (524) |  |  | (271) |
Provision for (benefit from) income taxes | $ | (1,670) |  |  | $ | 32 |  |  | $ | 3,690 |
The Company is subject to income taxes in the United States 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 United States. Components of the Company’s deferred income tax assets and liabilities are as follows:
| October 2, 2021 |  | October 3, 2020
(In thousands)
Deferred tax assets |  |  |
Accrued expenses and reserves | $ | 18,601 |  |  | $ | 12,014 |
Deferred revenue | 13,915 |  |  | 11,831 |
U.S. net operating loss carryforwards | 25,284 |  |  | 8,242 |
Foreign net operating loss carryforwards | 13,240 |  |  | 12,183 |
Research & development tax credit carryforwards | 77,607 |  |  | 53,543 |
Stock-based compensation | 9,082 |  |  | 11,018 |
Operating lease liability | 9,908 |  |  | 14,377 |
U.S. amortization | 8,031 |  |  | 7,648 |
Depreciation | 1,875 |  |  | 1,101 |
Other | 428 |  |  | 603 |
Total deferred tax assets | 177,971 |  |  | 132,560 |
Valuation allowance | (155,978) |  |  | (113,939) |
Deferred tax assets, net of valuation allowance | 21,993 |  |  | 18,621 |
Deferred tax liabilities |  |  |
Tax accounting method change | (962) |  |  | (2,946) |
Right-of-use asset | (7,388) |  |  | (9,914) |
Foreign amortization | (5,833) |  |  | (6,093) |
Depreciation | (32) |  |  | (187) |
Other | (144) |  |  | (115) |
Total deferred tax liabilities | (14,359) |  |  | (19,255) |
Net deferred tax assets (liabilities) | $ | 7,634 |  |  | $ | (634) |
Reported as |  |  |
Deferred tax assets | $ | 10,028 |  |  | $ | 1,800 |
Deferred tax liabilities | (2,394) |  |  | (2,434) |
Net deferred tax assets (liabilities) | $ | 7,634 |  |  | $ | (634) |
The Company has assessed, on a jurisdictional basis, the realization of its net deferred tax assets, including the ability to carry back net operating losses, the existence of taxable temporary differences, the availability of tax planning strategies and available sources of future taxable income. The Company has concluded that based on cumulative taxable income and future taxable income that it is able to realize a benefit for net deferred tax assets in certain foreign jurisdictions. In addition, the Company has concluded that a valuation allowance on its net deferred tax assets in the U.S. and certain foreign jurisdictions continues to be appropriate considering cumulative taxable losses in recent years and uncertainty with respect to future taxable income. During the fiscal year ended October 2, 2021, the Company determined that the net deferred tax asset of its Netherlands subsidiary was more-likely-than-not realizable and released valuation allowance of $7.8 million as an income tax benefit. The Company determined that the positive evidence, principally the Netherlands subsidiary being in a cumulative taxable income position with forecasts of future taxable income, outweighed the negative evidence, resulting in the valuation allowance release. It is possible that within the next 12 months there may be sufficient positive evidence to release a portion or all of the remaining valuation allowance. Release of the remaining 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, as well as prospective earnings in the United States and certain other foreign entities and jurisdictions. As of October 2, 2021, the Company had gross U.S. federal net operating loss carryforwards of $101.4 million, of which $70.3 million have an indefinite life and $31.1 million expire beginning in 2035, gross state net operating loss carryforwards of $64.6 million, which expire beginning in 2027, and gross foreign net operating loss carryforwards of $53.3 million with an indefinite life. As of October 2, 2021, the Company also had gross federal and state research and development tax credit carryforwards of $62.0 million and $44.3 million, respectively. The federal research and development tax credits will begin to expire in 2025, and the state research and development tax credits will begin to expire in 2024. Because of the change of ownership provisions of Sections 382 and 383 of the Internal Revenue Code, and similar state provisions, use of a portion of the Company’s U.S. federal and state net operating loss and research and development tax credit carryforwards may be limited in future periods depending upon changes in ownership. Further, a portion of the carryforwards may expire before being applied to reduce future taxable income and income tax liabilities if sufficient taxable income is not generated in future periods. The following table summarizes changes in the valuation allowance for fiscal 2021, 2020 and 2019:
| October 2, 2021 |  | October 3, 2020 |  | September 28, 2019
(In thousands) |  |  |  |  |
Beginning balance | $ | 113,939 |  |  | $ | 95,088 |  |  | $ | 72,380 |
Increase during the period | 49,791 |  |  | 18,851 |  |  | 22,708 |
Decrease during the period | (7,752) |  |  | — |  |  | — |
Ending balance | $ | 155,978 |  |  | $ | 113,939 |  |  | $ | 95,088 |
Reconciliation of U.S. statutory federal income taxes to the Company’s provision for (benefit from) income taxes is as follows:
| October 2, 2021 |  | October 3, 2020 |  | September 28, 2019
(In thousands) |  |  |  |  |
U.S. federal income taxes at statutory rate | $ | 32,954 |  |  | $ | (4,217) |  |  | $ | (226) |
U.S. state and local income taxes, net of federal benefit and state credits | (9,473) |  |  | (2,798) |  |  | (9,315) |
Foreign income tax rate differential | 1,430 |  |  | (75) |  |  | 129 |
Stock-based compensation | (47,496) |  |  | 869 |  |  | (2,399) |
Federal research and development tax credits | (21,535) |  |  | (8,012) |  |  | (8,418) |
Unrecognized federal tax benefits | 4,041 |  |  | 815 |  |  | (2,806) |
Change in tax rate | (2,681) |  |  | — |  |  | 1,161 |
Global intangible low taxed income, net of foreign tax credits | — |  |  | — |  |  | 239 |
Base erosion and anti-abuse tax | — |  |  | (781) |  |  | 781 |
Other | (565) |  |  | 598 |  |  | 822 |
Change in valuation allowance | 41,655 |  |  | 13,633 |  |  | 23,722 |
Provision for income taxes | $ | (1,670) |  |  | $ | 32 |  |  | $ | 3,690 |
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 ended on September 30, 2021. The Company expects operating profit or loss of Sonos Inc. and Sonos Europe B.V. to continue to be allocated in a similar manner for future taxable years. Change in gross unrecognized tax benefits, excluding interest and penalties, as a result of uncertain tax positions are as follows:
| October 2, 2021 |  | October 3, 2020 |  | September 28, 2019
(In thousands) |  |
Beginning balance | $ | 14,721 |  |  | $ | 12,527 |  |  | $ | 17,794 |
Decrease - tax positions in prior periods | (4) |  |  | (768) |  |  | (8,226) |
Increase - tax positions in current periods | 6,535 |  |  | 2,962 |  |  | 2,959 |
Ending balance | $ | 21,252 |  |  | $ | 14,721 |  |  | $ | 12,527 |
The Company does not anticipate material changes to its 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 2, 2021, would have no impact on the effective tax rate if recognized. The Company conducts business in a number of jurisdictions and, as such, is required to file income tax returns in multiple jurisdictions globally. U.S. federal income tax returns for the 2017 tax year and earlier are no longer subject to examination by the U.S. Internal Revenue Service (the "IRS"). All U.S. federal and state net operating losses as well as research and development tax credits generated to date, including 2017 and earlier, used in open tax years are subject to adjustment by the IRS and state tax authorities. 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 2, 2021, and October 3, 2020. As of October 2, 2021, the Company continues 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 $5.4 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. Outside basis differences in the Company's foreign subsidiaries including unremitted earnings and any related taxes are not material.

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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=121826272&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=122134291&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=121826272&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=122134291&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=121826272&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 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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