Income Taxes

9 Months Ended

Apr. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes The Company recognized an income tax benefit of $5.4 million and $4.4 million for the three months ended April 30, 2020 and 2019, respectively, and an income tax benefit of $7.8 million and $9.0 million for the nine months ended April 30, 2020 and 2019, respectively. The change in the amount of income tax recorded for the three months ended April 30, 2020 compared to the same period a year ago was primarily due to higher losses recognized during the current fiscal quarter. The change in the amount of income tax recorded for the nine months ended April 30, 2020 compared to the same period a year ago was primarily due to the base erosion and anti-abuse tax ("BEAT") liability of $11.3 million recognized during the nine months ended April 30, 2020, of which $5.4 million relates to the current fiscal year and $5.9 million relates to the prior fiscal year, as a result of regulations issued by the Internal Revenue Service (“IRS”) on December 2, 2019. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was passed on March 27, 2020 and amended a certain provision of the tax law that reduced the Company's BEAT liability by $1.0 million, which was recorded during the three months ended April 30, 2020. The effective tax rate of 15% and 11% for the three and nine months ended April 30, 2020, respectively, differs from the statutory U.S. federal income tax rate of 21% mainly due to permanent differences for stock-based compensation including excess tax benefits, research and development credits, certain non-deductible expenses including executive compensation, and BEAT.

Due to uncertainties in pending tax regulations that existed earlier in the fiscal year and the recent economic impact of COVID-19 during the third fiscal quarter of 2020, the Company has not been able to reliably estimate the overall annual effective tax rate during fiscal year 2020. As a result we have used the actual effective tax rate in calculating our provision for (benefit from) income taxes during the interim periods of fiscal year 2020.

During the three and nine months ended April 30, 2020, unrecognized tax benefits increased by $0.3 million and $1.0 million, respectively. As of April 30, 2020, the Company had unrecognized tax benefits of $6.9 million that, if recognized, would affect the Company’s effective tax rate.

In February 2020, the California Franchise Tax Board notified the Company that they will be reviewing fiscal year 2017 and 2018 state income tax returns.