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Income Taxes
 12 Months Ended
Jul. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income (loss) before income taxes are as follows:
For the Fiscal Year Ended
(in thousands)July 31, 2021August 1, 2020August 3, 2019
Income (loss) before income taxes
United States$(62,341)$(48,302)$31,657 
Foreign1,224 580 (836)
Total$(61,117)$(47,722)$30,821 
The components of the provision (benefit) for income tax expense are as follows:
For the Fiscal Year Ended
(in thousands)July 31, 2021August 1, 2020August 3, 2019
Current:
Federal$(49,552)$(5,528)$(221)
State(2,562)1,768 2,431 
Foreign(191)275 (67)
Total current(52,305)(3,485)2,143 
Deferred:
Federal— 17,367 (5,464)
State— 5,773 (2,667)
Foreign64 (260)(72)
Total deferred64 22,880 (8,203)
Provision (benefit) for income taxes$(52,241)$19,395 $(6,060)
The reconciliation of our effective tax rate to the statutory federal rate is as follows:
For the Fiscal Year Ended
(in thousands, except percentages)July 31, 2021August 1, 2020August 3, 2019
Taxes at federal statutory rate$(12,835)21.0 %$(10,022)21.0 %$6,472 21.0 %
State taxes, net of federal effect(2,417)4.0 %(4,868)10.2 %(1,068)(3.5)%
Stock-based compensation(34,314)56.1 %(2,047)4.3 %(7,114)(23.1)%
CARES Act carryback benefit(13,571)22.2 %(3,070)6.4 %— 0.0 %
Change in valuation allowance21,789 (35.7)%43,153 (90.4)%— 0.0 %
R&D credits(13,582)22.2 %(6,536)13.7 %(5,984)(19.4)%
Uncertain tax positions(40)0.1 %2,343 (4.9)%2,030 6.6 %
Return to provision783 (1.3)%(777)1.6 %(1,821)(5.9)%
Other1,946 (3.1)%1,219 (2.5)%1,425 4.6 %
  Effective tax rate$(52,241)85.5 %$19,395 (40.6)%$(6,060)(19.7)%
The components of net deferred tax assets are as follows:
(in thousands)July 31, 2021August 1, 2020August 3, 2019
Deferred tax assets:
Inventory reserve and UNICAP$23,007 $17,015 $11,696 
Deferred rent— — 232 
Accruals and reserves5,997 4,632 6,623 
Research and development credits27,964 11,611 4,778 
Stock-based compensation17,062 11,717 6,195 
Deferred revenue276 435 713 
Operating lease liability35,969 39,380 — 
Net operating losses10,136 739 — 
Other1,105 349 302 
Gross deferred tax assets121,516 85,878 30,539 
Less: valuation allowance(77,604)(43,153)— 
Deferred tax assets, net of valuation allowance43,912 42,725 30,539 
Deferred tax liabilities:
Depreciation and amortization(13,110)(11,044)(8,275)
Operating lease right-of-use assets(28,607)(31,267)— 
Other(1,907)(81)(89)
Gross deferred tax liabilities(43,624)(42,392)(8,364)
Net deferred tax assets, net of valuation allowance$288 $333 $22,175 
Our effective tax rate and provision for income taxes increased from the fiscal year ended August 1, 2020, to the fiscal year ended July 31, 2021, primarily due to the net operating loss carryback provisions of the CARES Act and excess tax benefits from stock-based compensation, partially offset by the change in valuation allowance and certain nondeductible expenses.
Our effective tax rate and provision for income taxes increased from the fiscal year ended August 3, 2019, to the fiscal year ended August 1, 2020, primarily due to recording a valuation allowance on our net federal and state deferred tax assets and decreased excess tax benefits from stock-based compensation, partially offset by the net operating loss carryback provisions of the CARES Act.
The Company considers all undistributed earnings of foreign subsidiaries indefinitely reinvested outside the United States.
As of July 31, 2021 we had state net operating loss carryforwards of $142.0 million which begin to expire in 2025. As of July 31, 2021 and August 1, 2020, we had federal research and development tax credit carryforwards of $30.1 million and $6.5 million which begin to expire in 2036 and 2040, respectively. As of July 31, 2021 and August 1, 2020, we had California research and development tax credit carryforwards of $17.0 million and $9.2 million, respectively, which are not subject to expiration. Utilization of the net operating loss carryforwards, tax credits and other tax attributes may be subject to various limitations due to the ownership change limitations provided by Internal Revenue Code (IRC) Section 382 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before their utilization and our ability to offset future income with our tax attributes.
Uncertain Tax Positions
A reconciliation of our unrecognized tax benefits is as follows:
(in thousands)July 31, 2021August 1, 2020August 3, 2019
Balance at the beginning of the year$16,693 $10,995 $5,503 
Lapse of statute of limitations(1,909)(939)(422)
Increase related to prior period tax positions495 1,074 2,602 
Decrease related to prior period tax positions— — (183)
Increase related to current year tax positions8,346 5,563 3,495 
Balance at the end of the year$23,625 $16,693 $10,995 
The amount of unrecognized tax benefits relating to our tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, we anticipate that the balance of the liability for unrecognized tax benefits and related deferred tax assets will decrease by $2.2 million during the next 12 months due to lapses of applicable statutes of limitation. Our liability for uncertain tax positions as of July 31, 2021, includes $4.0 million related to amounts that would impact our current and future tax expense.
We recognize interest related to uncertain tax positions in our provision for income taxes. The Company files income tax returns in the U.S. federal and various state and local jurisdictions and in the UK. As of July 31, 2021, the fiscal year 2016 through 2020 tax returns are subject to potential examination in one or more jurisdictions. We are under examination by the New York State Department of Taxation for fiscal years 2016 through 2018 and Texas Franchise Tax Board for the fiscal years 2017 through 2019.
We regularly assess whether it is more likely than not that we will realize our deferred tax assets in each taxing jurisdiction in which we operate. We consider many factors when assessing the likelihood of future realization, including our recent cumulative loss, earnings expectations in earlier future years, unsettled economic disruption of the COVID-19 pandemic, and other relevant factors. We continue to record a full valuation allowance on our US and state net deferred tax assets due to cumulative historical losses. The valuation allowance primarily relates to federal and state deferred tax assets, including unrealized federal and state credit carryforwards and state net operating losses. The valuation allowance increased by $34.5 million in the year ended July 31, 2021 and $43.2 million in the year ended August 1, 2020.
A reconciliation of our valuation allowance is as follows:
(in thousands)July 31, 2021August 1, 2020
Beginning of year valuation allowance$43,153 $— 
Valuation allowance charged / (credited) to expense40,995 43,153 
Valuation allowance charged / (credited) to other accounts(6,544)— 
End of year valuation allowance$77,604 $43,153