(11) Income Taxes

The provision for income taxes is based upon the income (loss) before income taxes as follows (in thousands):

	Year Ended January 31,
	2017			2018
Domestic	$	(106,856	)	$	(158,664	)
Foreign		1,520			1,483
Total loss before provision for income taxes	$	(105,336	)	$	(157,181	)

The provision for income taxes consisted of the following (in thousands):

	Year Ended January 31,
	2017			2018
Current:
Federal	$	—		$	—
State		12			16
Foreign		443			425
Total current tax provision		455			441
Deferred:
Federal		(8	)		—
State	—				—
Foreign		18			37
Total deferred tax provision		10			37
Provision for income taxes	$	465		$	478

The provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to income before taxes as follows (in thousands):

	Year Ended January 31,
	2017			2018
U.S. federal taxes at statutory tax rate	$	(35,816	)	$	(53,143	)
State taxes, net of federal benefit		8			11
Nondeductible expenses		281			978
Nondeductible stock-based compensation		2,894			4,453
Foreign rate differential		(59	)		(54	)
Remeasurement of deferred tax assets and liabilities		—			59,160
Other		(618	)		(1,859	)
Change in valuation allowance		33,775			(9,068	)
Provision for income taxes	$	465		$	478

During the year ended January 31, 2018, the Company’s provision for income taxes was primarily attributable to foreign tax provision in certain foreign jurisdictions in which it conducts business, as well as U.S. state taxes.

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred income tax assets and liabilities are as follows (in thousands):

	Year Ended January 31,
	2017			2018
Deferred tax assets:
Net operating losses	$	93,497		$	82,375
Depreciation and amortization		2,527			1,877
Accruals and reserves		14,565			12,295
Stock-based compensation		3,715			11,480
Tax credits		4,592			8,202
Other		5			3
Gross deferred tax assets		118,901			116,232
Valuation allowance		(118,827	)		(116,195	)
Net deferred tax assets after valuation allowance		74			37
Deferred tax liabilities		—			—
Total net deferred tax assets	$	74		$	37

The valuation allowance increased by $37.2 million and decreased $2.6 million during the years ended January 31, 2017 and 2018, respectively. The Company recorded a full valuation allowance against the net federal and state deferred tax assets as it is not more likely than not that the assets will be realized. Realization of deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain. At such time, if it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be adjusted.

As of January 31, 2018, the Company had net operating loss carryforwards and tax credit carryforwards as follows (in thousands):

	Amount		Expiration year
Net operating losses, federal	$	348,210	2028-2038
Net operating losses, California		50,706	2028-2038
Net operating losses, other states		103,064	Various
Tax credits, federal		7,778	2030-2038
Tax credits, state	$	7,431	Indefinite

Federal and California tax laws impose limitations on the utilization of NOL and credit carryforwards in the event of an “ownership change” for tax purposes, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company’s ability to utilize these carryforwards may be limited as a result of such “ownership change.”

The Company has no present intention of remitting undistributed earnings of foreign subsidiaries and, accordingly, no deferred tax liability has been established relative to these earnings. Determination of the amount of an unrecognized deferred tax liability on these undistributed earnings is not practicable.

The activity related to the unrecognized tax benefits is as follows (in thousands):

	Year Ended January 31,
	2017		2018
Gross unrecognized tax benefits—beginning balance	$	2,511	$	3,598
Increase related to tax positions taken during current year		1,087		1,386
Increase related to tax positions taken during prior years	—			1,084
Gross unrecognized tax benefits—ending balance	$	3,598	$	6,068

As of January 31, 2017 and 2018, the Company has unrecognized tax benefits of $3.6 million and $6.1 million, respectively, none of which would have an impact on the effective tax rate, if recognized.

The Company recognizes interest and penalties related to uncertain tax positions, if any, as a component of its income tax provision. The Company recognized no interest and penalties related to uncertain tax positions for the years ended January 31, 2017 and 2018, in the consolidated statements of operations or balance sheets. None of the unrecognized tax benefits, if recognized currently, would impact the Company’s effective tax rate. The Company does not expect any material changes to its uncertain tax positions within the next twelve months.

The Company files federal, state, and foreign income tax returns in many jurisdictions in the United States and abroad. For U.S. federal and state income tax purposes, the statute of limitations currently remains open for all years due to the Company’s NOL carryforwards. The Company is not currently under examination in any jurisdiction.

Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including gains from other comprehensive income, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets.

The Tax Cuts and Jobs Act of 2017 (Tax Act), as signed by the President of the United States on December 22, 2017, significantly revises U.S. tax law. The tax reform legislation reduces the corporate tax rate, limits or eliminates certain tax deductions and changes the taxation of foreign earnings of U.S. multinational companies. The Deemed Repatriation Transition Tax (Transition Tax) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company’s foreign subsidiaries at reduced tax rates. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings.

The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. Consequently, the Company recorded a decrease to deferred tax assets of approximately $59.2 million. This reduction was fully offset by a corresponding change in the valuation allowance recorded against deferred tax assets.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company is able to make a reasonable estimate of the Transition Tax and expects to utilize U.S. net operating losses to reduce the tax. The Company will continue to gather additional information to more precisely compute the amount of the Transition Tax within the measurement period. Although the tax rate reduction is known, the Company has not collected all of the necessary data to complete its analysis of the effect of the Tax Act on the underlying deferred taxes and as such, the amounts recorded as of January 31, 2018, are provisional.