Income Taxes

9 Months Ended

Oct. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesOur tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in the applicable quarter. In each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to significant volatility due to several factors, including our ability to accurately predict the proportion of our pretax income in multiple jurisdictions and certain book-tax differences.

The following table provides details of the provision for (benefit from) income taxes:

	Three Months Ended October 31,						Nine Months Ended October 31,
	2021			2020			2021			2020
	(in thousands, except percentages)
Income before provision for (benefit from) income taxes	$	410,283		$	194,021		$	963,098		$	413,381
Provision for (benefit from) income taxes	69,900			(4,621)			78,100			1,675
Effective tax rate	17.0		%	(2.4)		%	8.1		%	0.4		%

We had a provision for income taxes of $69.9 million for the three months ended October 31, 2021, and a benefit from income taxes of $4.6 million for the three months ended October 31, 2020. The provision for income taxes was $78.1 million and $1.7 million for the nine months ended October 31, 2021 and 2020, respectively. The provision for income taxes for the three and nine months ended October 31, 2021 consisted primarily of federal, state, and foreign income taxes. For the three and nine months ended October 31, 2021 and 2020, the provision for income taxes and benefit from income taxes differed from the U.S. federal statutory rate primarily due to stock-based compensation and the valuation allowance on the U.S. and the U.K. deferred tax assets. The increase in the provision for the three and nine months ended October 31, 2021 was primarily due to an increase in global income, certain elections and accounting method changes creating additional book-tax differences, as well as a decrease in stock-based compensation for tax purposes. Given their nature, these additional book-tax differences necessitated the recording of deferred tax assets, and a valuation allowance was recorded on those new deferred tax assets.

The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available objective evidence during the three and nine months ended October 31, 2021, we continue to believe that it is more likely than not that the tax benefits of the U.S. and the U.K. net deferred tax assets may not be realized. Accordingly, we recorded a full valuation allowance against the tax benefits of these net deferred tax assets. We intend to maintain the full valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance.

In our valuation allowance evaluation, we give more weight to evidence that can be objectively verified than to evidence that cannot be objectively verified. Our consideration of the evidence requires management to make a number of significant judgements, estimates, and assumptions about highly complex and inherently uncertain matters. Given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that in the short-term, sufficient positive evidence may become available that results in a conclusion that a portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of net deferred tax assets on our condensed consolidated balance sheets and would decrease income tax expense in the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on a number of factors, including but not limited to, the level of profitability (pretax income adjusted for permanent differences) that we are able to accurately forecast and/or acquisitions of other businesses.

During the three and nine months ended October 31, 2021, there were no material changes to the total amount of unrecognized tax benefits and we do not expect any significant changes in the next 12 months.

On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan Act”) was passed into law and amended portions of relevant tax laws. The American Rescue Plan Act did not have a significant impact on the provision for income taxes for the three and nine months ended October 31, 2021.