Income Taxes

9 Months Ended

May 02, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Coronavirus Aid, Relief, and Economic Security Act

The CARES Act provides relief from certain requirements under U.S. GAAP and contains several corporate income tax provisions, including making remaining AMT credits immediately refundable; providing a 5-year carryback of net operating losses (“NOLs”) generated in tax years 2018, 2019, and 2020, and removing the 80% taxable income limitation on utilization of those NOLs if carried back to prior tax years or utilized in tax years beginning before 2021; and temporarily liberalizing the interest deductibility rules under Section 163(j) of the Internal Revenue Code, by raising the adjusted taxable income limitation

from 30% to 50% for tax years 2019 and 2020 and giving taxpayers the election of using 2019 adjusted taxable income for purposes of computing 2020 interest deductibility. The CARES Act did not have a material impact to the Company’s financial condition or results of operation for the three and nine months ended May 2, 2020. The Company has requested a $1.4 million refundable AMT Credit and plans to defer the timing of payroll taxes as permitted by the CARES Act.

Tax Cuts and Jobs Act

During the second quarter of Fiscal 2019, adjustments were made to estimates recorded in Fiscal 2018 upon the adoption of the 2017 Tax Cuts and Jobs Act (the “2017 Act”). As previously reported, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which is also included in FASB ASU 2018-05 and provided guidance on accounting for the tax effects of the 2017 Act. SAB 118 allows for a measurement period that should not extend beyond one year from the 2017 Act enactment date of December 22, 2017 for companies to complete the accounting under Accounting Standards Codification Topic 740, “Income Taxes” ("ASC 740"). The Company completed its accounting for the impact of the 2017 Act during the second quarter of Fiscal 2019 and increased its Fiscal 2018 estimate of the one-time federal and state transition tax by $2.3 million to $26.9 million and by $0.2 million to $0.9 million, respectively.

The 2017 Act subjects the Company to a new minimum tax on global intangible low-taxed income (“GILTI”) earned by foreign subsidiaries for taxable years beginning after December 31, 2017.  Accordingly, the Company made an accounting policy election to treat GILTI taxes as a current period expense and made a reasonable estimate of the impact of GILTI which was included in its Fiscal 2019 effective tax rate. The Company considered the potential impact of GILTI on its U.S. federal NOL carryforward on the basis of the incremental economic benefit and determined a partial valuation allowance of $5.2 million was required to offset its NOL carryforward because it is not expected to provide incremental tax benefits. The allowance was recorded in the second quarter of Fiscal 2019. In the third quarter of Fiscal 2019, the Company reduced the partial valuation allowance by $2.0 million.

Effective Tax Rate

The Company’s effective tax rate is reflective of the jurisdictions where the Company has operations. The effective tax rates for the third quarter and the first nine months of Fiscal 2020 were (0.9)% and (1.2)%, respectively, which were lower than the statutory tax rate as a result of non-deductible impairments of goodwill and changes in the valuation allowance on U.S. federal and state deferred tax assets.