Income Taxes

9 Months Ended

Oct. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We compute our provision for income taxes by applying the estimated annual effective tax rate to year-to-date ordinary income and adjust the provision for discrete tax items recorded in the period. In each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision.

The following table provides details of the provision for income taxes:

	Three Months Ended October 31,						Nine Months Ended October 31,
	2023			2022			2023			2022
	(in thousands, except percentages)
Income before provision for income taxes	$	185,826		$	54,749		$	479,429		$	288,820
Provision for income taxes	44,614			6,396			140,799			81,059
Effective tax rate	24.0		%	11.7		%	29.4		%	28.1		%

The year-over-year change in effective tax rate for the three and nine months ended October 31, 2023 was due primarily to changes in the valuation allowance, tax shortfalls and windfalls on stock-based compensation, and the foreign-derived intangible income deduction. For both the three and nine months ended October 31, 2023 and October 31, 2022, the effective tax rate differed from the U.S. federal statutory rate due primarily to the foreign-derived intangible income deduction and research credits, offset by tax shortfalls on stock-based compensation, the valuation allowance recorded on certain deferred tax assets, and other compensation-related permanent differences.

As required by the 2017 Tax Cuts and Jobs Act, we started capitalizing research and development expenses incurred beginning in fiscal year 2023. These expenses are capitalized and amortized over five years for domestic research and fifteen years for international research. The mandatory capitalization requirement increases our cash tax liabilities but also decreases our effective tax rate due to increasing the foreign-derived intangible income deduction. The cash flow impact will decrease over time as capitalized research and development expenditures continue to amortize.