Income taxes

9 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

For interim reporting purposes, we calculate an annual estimated tax rate and apply that rate to actual results to estimate our taxes. In cases when we cannot reliably estimate an annual estimated tax rate, actual tax expense or the “cutoff method” is utilized as the estimate.

The effective tax rate for the periods presented is the result of the mix of forecasted fiscal year income earned or loss incurred in various tax jurisdictions that apply a broad range of income tax rates. Our provision for income taxes for continuing operations was $1.1 million in the nine months ended March 31, 2020 compared to $1.0 million in the nine months ended March 31, 2019 and was comprised primarily of foreign withholding taxes and income taxes in foreign jurisdictions where we have profit. Our effective tax provision rate of 8% of income from continuing operations for the nine months ended March 31, 2020 was less than the tax amount computed at the U.S. federal statutory income tax rate due primarily to the application of the cutoff method to compute US taxes. Our effective tax provision rate of 7% of loss from continuing operations for the nine months ended March 31, 2019 was greater than the tax amount computed at the U.S. federal statutory income tax rate due primarily to losses for which no benefit will be recognized since the tax assets are not likely to be realized due to the lack of current and forecasted future income. Although the total income tax provision did not change for the nine months ended March 31, 2019, taxes were allocated to discontinued operations in an amount equal to the difference between the tax originally computed on loss from operations and the tax recomputed on the amount of loss from continuing operations.

We record liabilities related to unrecognized tax benefits in accordance with authoritative guidance on accounting for uncertain tax positions. As of March 31, 2020 and June 30, 2019, our cumulative unrecognized tax benefits were $5.2 million and $4.6 million, respectively. Included in the balance of unrecognized tax benefits at March 31, 2020 and June 30, 2019 was $77,000 and $77,000, respectively, that if recognized, would affect the effective tax rate.

We recognize interest and penalties related to unrecognized tax benefits as part of our provision for federal, state and foreign income taxes. We accrued zero for the payment of interest and penalties at March 31, 2020 and June 30, 2019.

We file income tax returns with the Internal Revenue Service, or IRS, California and various states and foreign tax jurisdictions in which we have filing obligations. The statute of limitations remains open from fiscal 2017 for federal tax purposes, from fiscal 2014 in state jurisdictions and from fiscal 2013 in foreign jurisdictions. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years which have been carried forward and may be audited in subsequent years when utilized.

Due to operating losses in previous years and continued earnings volatility, we maintain a valuation allowance on the majority of our deferred tax assets. Our valuation allowance at June 30, 2019 was $48.4 million. In evaluating our ability to recover our deferred tax assets each quarter, we consider all available positive and negative evidence, including current and previous operating results, ability to carryback losses for a tax refund, and forecasts of future operating results.

On March 27, 2020, the U.S. government enacted new tax legislation commonly referred to as the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The CARES Act includes several significant business tax provisions to provide liquidity to businesses affected by the economic impact of COVID-19. Specifically, the CARES Act repeals the 80% limitation on the use of net operating losses for tax years 2018, 2019, and 2020; allows the carryback of net operating losses arising in tax years 2018, 2019, and 2020 to the prior five tax years; suspends the excess business loss rules, accelerates refunds of alternative minimum tax credits; and loosens the business interest limitations. The measure also adds an employee retention credit and deferral on the payment of social security taxes incurred from March 27, 2020 through December 31, 2020. The provisions of the CARES Act are not expected have a material impact to our financial statements.