Income Taxes

6 Months Ended

Feb. 29, 2020

INCOME TAXES

Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and the tax bases of assets and liabilities using currently enacted tax rates.

Provision for Income Taxes

The provision for income taxes is as follows:


	Three Months Ended									Six Months Ended
	February 29,			February 28,			February 29,			February 28,
(in thousands)	2020			2019			2020			2019
Income before income taxes	$	103,109		$	104,349		$	211,850		$	200,292
Provision for income taxes	$	14,423		$	19,647		$	29,207		$	31,294
Effective tax rate	14.0		%	18.8		%	13.8		%	15.6		%

FactSet’s effective tax rate is based on recurring factors and nonrecurring events, including the taxation of foreign income. The Company’s effective tax rate will vary based on, among other things, changes in levels of foreign income, as well as discrete and other nonrecurring events that may not be predictable. FactSet’s effective tax rate is lower than the applicable U.S. corporate income tax rate for the three and six months ended February 29, 2020 due to R&D tax benefits, foreign derived intangible income deduction ("FDII"), and excess tax benefits associated with share-based payments.

For the three months ended February 29, 2020, the provision for income taxes was $14.4 million, a decrease of 26.6% from the same period a year ago. The provision decreased due primarily to a higher windfall tax benefit from stock-based compensation of $4.7 million for the three months ended February 29, 2020 compared to the prior year period, a $2.4 million income tax expense from the settlement with a tax authority recognized during the three months ended February 28, 2019, partially offset by a $1.1 million benefit from the revision of the one-time transition tax on accumulated earnings and profits of foreign subsidiaries permitted by the TCJA recognized during the three months ended February 28, 2019.

For the six months ended February 29, 2020, the provision for income taxes was $29.2 million, a decrease of 6.7% from the same period a year ago. The provision decreased mainly due to higher net tax benefits, partially offset by higher operating income for the six months ended February 29, 2020 compared to the prior year period. The net increase in tax benefits of $10.6 million for the six months ended February 29, 2020, compared to $6.6 million for the prior year period, was primarily driven by an income tax expense from the settlement with a tax authority recorded during the six months ended February 28, 2019, coupled with benefits recognized during the six months ended February 29, 2020 from finalizing prior years' tax returns, remeasurement of a foreign net deferred tax position due to changes in the jurisdiction's tax rate and higher windfall tax benefits from stock-based compensation. The reduction in the provision was partially offset by the benefit from the revision of the one-time transition tax on accumulated earnings and profits of foreign subsidiaries permitted by the TCJA recognized during the six months ended February 28, 2019.

FactSet finalized the accounting for the tax effects of the TCJA with respect to the one-time transition tax; however the tax effects may be affected by changes in interpretations at the federal and state levels, and any additional regulatory guidance that may be issued.