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Income Taxes
 12 Months Ended
Jan. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of the net income before the provision for (benefit from) income taxes were as follows:
 Year Ended January 31,
 202420232022
 (in thousands)
Domestic$792,495 $196,224 $1,047,318 
Foreign39,817 53,052 54,314 
Total$832,312 $249,276 $1,101,632 
The provision for (benefit from) income taxes was as follows:
 Year Ended January 31,
 202420232022
 (in thousands)
Current:
Federal$257,913 $254,505 $69,853 
State44,457 33,548 20,174 
Foreign9,159 18,473 12,027 
Total current income tax expense (benefit)
311,529 306,526 102,054 
Deferred:
Federal(88,110)(173,941)(293,704)
State(20,201)16,673 (82,561)
Foreign(8,368)(3,693)204 
Total deferred income tax expense (benefit)
(116,679)(160,961)(376,061)
Total provision for (benefit from) income taxes
$194,850 $145,565 $(274,007)
The provision for (benefit from) income taxes differs from the amount computed by applying the statutory federal tax rate as follows:
 Year Ended January 31,
 202420232022
 (in thousands, except percentages)
Tax at federal statutory rate$174,785 $52,277 $231,350 
State taxes37,137 13,666 24,840 
Foreign rate differential2,943 1,017 1,830 
Non-deductible compensation10,639 10,231 — 
Stock-based compensation96,936 124,631 (135,250)
Permanent Items4,016 9,090 3,971 
Foreign-derived intangible income deduction(63,571)(76,686)(34,131)
Research and development credits(39,226)(38,127)(42,973)
Tax uncertainties2,674 2,296 244 
Change in valuation allowance(14,109)39,288 (322,231)
Deferred rate change(6,803)2,014 — 
Other(10,571)5,868 (1,658)
Total$194,850 $145,565 $(274,007)
Effective tax rate23.4 %58.4 %(24.9)%
Deferred income taxes result from differences in the recognition of amounts for tax and financial reporting purposes, as well as operating loss and tax credit carryforwards. Significant components of our deferred income tax assets as of January 31, 2024 and 2023 are as follows:
 
As of January 31,
 20242023
 (in thousands)
Deferred tax assets:
Net operating loss carryforwards$12,995 $14,788 
Research and development credit carryforwards16,610 12,792 
Stock-based compensation84,906 116,798 
Accruals and reserves39,295 42,271 
Deferred revenue308,152 303,167 
Capitalized research expenditures379,102 245,708 
Operating lease liabilities17,829 23,140 
Other assets
4,105 10,541 
Total deferred tax assets862,994 769,205 
Valuation allowance(35,949)(53,570)
Total deferred tax assets net of valuation allowance827,045 715,635 
Deferred tax liabilities:
Property and equipment and intangible assets(35,007)(36,274)
Deferred contract acquisition costs(83,862)(89,839)
Operating right-of-use assets(14,396)(19,352)
Other liabilities
(35,480)(13,054)
Total deferred tax liabilities(168,745)(158,519)
Net deferred tax assets$658,300 $557,116 
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. As of January 31, 2024, management concluded that the valuation allowance related to the U.K. net deferred tax assets was no longer needed primarily due to its assessment of income/loss in recent periods and the forecast of future taxable income. Based on evaluation of all positive and
negative evidence, management believes it is more likely than not that the net deferred tax assets will be realized for U.K. purposes. Accordingly, management has recognized a non-recurring tax benefit of $10.7 million related to the valuation allowance release. Based on the available objective evidence during the year ended January 31, 2024, we believe that it is more likely than not that the tax benefits relating to U.S. losses that are capital in nature and certain state and other foreign deferred tax assets may not be realized prior to expiration. Accordingly, we have maintained a valuation allowance against these deferred tax assets and intend to maintain the applicable valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance.
As of January 31, 2024, we had net operating loss carryforwards of approximately $12.3 million for federal income tax purposes, $14.2 million for state income tax purposes, which will begin to expire in the year 2033 if unused. We also had certain foreign net operating loss carryforwards of $35.6 million, which have an indefinite life.
As of January 31, 2024, we also had research and development credit carryforwards of approximately $1.2 million for federal income tax purposes and $31.9 million for state income tax purposes. The federal research and development tax credits have a twenty-year carryover period while the state research and development tax credits carry forward indefinitely.
The federal and state net operating loss carryforwards may be subject to significant limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986 and similar provisions under state law. Such provisions limit the net operating loss carryforwards that may be used in any given year in the event of special occurrences, including significant ownership changes. We have completed a Section 382 review and determined that materially none of our operating losses will expire solely due to Section 382 limitation(s).
We indefinitely reinvest earnings from our foreign subsidiaries and therefore no deferred tax liability has been recognized on the basis difference created by such earnings. We have not provided foreign withholding taxes for any undistributed earnings of our foreign subsidiaries.
A reconciliation of the beginning and ending balance of total unrecognized tax benefits is as follows:
Unrecognized Tax Benefits (in thousands)Year Ended January 31,
 202420232022
   
Balance, beginning of year$30,404 $19,171 $14,884 
Tax Positions taken in prior year:
Gross increases228 877 — 
Gross decreases— — (3,764)
Tax Positions taken in current year:
Gross increases12,415 10,547 8,211 
Gross decreases(891)— — 
Lapse of Statute of Limitations(384)(191)(160)
Acquisitions— — — 
Balance, end of year$41,772 $30,404 $19,171 
As of January 31, 2024, gross unrecognized tax benefits related to uncertain tax positions were $41.8 million ($46.5 million total, including $4.7 million associated with interest and penalties). As of January 31, 2023, gross unrecognized tax benefits related to uncertain tax positions were $30.4 million ($32.5 million total, including $1.6 million associated with interest and penalties). As of January 31, 2022, gross unrecognized tax benefits related to uncertain tax positions were $19.2 million ($19.6 million total, including $0.4 million associated with interest and penalties). We recognized approximately $4.7 million, $1.6 million, and $0.4 million in potential interest and penalties associated with uncertain tax positions during fiscal years ended January 31, 2024, 2023, and 2022, respectively. To the extent taxes are not assessed with respect to uncertain tax positions, substantially all amounts accrued (including interest and penalties) will be reduced and reflected as a reduction of the overall income tax provision. Unrecognized tax benefits and associated accrued interest and penalties are included in our income tax provision.
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign jurisdictions. As of January 31, 2024, all of the years remain open to examination by the federal and state tax authorities, for three or four years from the tax year in which net operating losses or tax credits are utilized. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. Although the timing of the resolution, settlement, and closure of audits is not certain, we do not believe it is reasonably possible that our unrecognized tax benefits will materially change in the next 12 months.
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.