Income taxes

3 Months Ended

Sep. 30, 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 $14,000 in the three months ended September 30, 2020 compared to $411,000 in the three months ended September 30, 2019 and was comprised primarily of foreign withholding taxes and income taxes in foreign jurisdictions. Our effective tax provision rate of 0% of income from continuing operations for the three months ended September 30, 2020 was less than the tax amount computed at the U.S. federal statutory income tax rate due primarily to the release of the valuation allowance. Our effective tax provision rate of 93% of income from continuing operations for the three months ended September 30, 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.

We record liabilities related to unrecognized tax benefits in accordance with authoritative guidance on accounting for uncertain tax positions. As of September 30, 2020 and June 30, 2020, our cumulative unrecognized tax benefits were $5.5 million and $5.4 million, respectively. Included in the balance of unrecognized tax benefits at September 30, 2020 and June 30, 2020 was $100,000 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 September 30, 2020 and June 30, 2020.

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 2016 in state jurisdictions and from fiscal 2015 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, 2020 was $46.8 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 Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (NOL) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Due to the Company’s history of losses and previous carrybacks, we will not receive any tax benefit from the NOL carryback provisions of the CARES Act.