Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income before provision for income taxes are as follows (in thousands):

	Year Ended December 31,
	2023		2022		2021
Domestic	$	1,977,687	$	1,260,614	$	737,620
Foreign	444,339		321,182		193,259
Income before income taxes	$	2,422,026	$	1,581,796	$	930,879

The components of the provision for income taxes are as follows (in thousands):

	Year Ended December 31,
	2023		2022		2021
Current provision for income taxes:
Federal	$	574,449	$	359,158	$	137,203
State	106,866		76,321		38,478
Foreign	24,186		38,250		13,391
Total current	705,501		473,729		189,072
Deferred tax expense (benefit):
Federal	(372,270)		(219,568)		(98,534)
State	(41,152)		(34,689)		(16,289)
Foreign	42,626		9,878		15,776
Total deferred tax expense (benefit)	(370,796)		(244,379)		(99,047)
Total provision for income taxes	$	334,705	$	229,350	$	90,025

The reconciliation of the statutory federal income tax rate and our effective income tax rate is as follows (in percentages):

	Year Ended December 31,
	2023		2022		2021
U.S. federal statutory income tax rate	21.00	%	21.00	%	21.00	%
State tax, net of federal benefit	2.13		2.09		1.89
Taxes on foreign earnings differential	(1.96)		(2.24)		(2.13)
Tax credits	(2.74)		(2.24)		(2.70)
Change in valuation allowance	—		—		0.01
Stock-based compensation	(4.59)		(4.07)		(8.32)
Acquisition and integration costs	0.01		0.05		0.03
Other, net	(0.04)		(0.09)		(0.11)
Effective tax rate	13.81	%	14.50	%	9.67	%

The change in our effective tax rate was due to a change in tax benefits attributable to stock-based compensation and the reduction of unrecognized tax benefits as a result of lapse of the applicable statute of limitation in 2023. Excess tax benefits resulting from stock awards were $151.2 million, $93.5 million and $105.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. The reduction of unrecognized tax benefits due to expiration of statute of limitations were immaterial for the three years ended December 31, 2023, 2022 and 2021, respectively.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) are as follows (in thousands):

	December 31,
	2023		2022
Deferred tax assets:
Intangible assets	$	322,325	$	355,521
Reserves and accruals not currently deductible	120,973		63,517
Deferred revenue	295,268		182,594
Tax credits	118,123		100,284
Lease financing obligation	15,485		15,072
Capitalized research and development expenses	417,095		228,946
Stock-based compensation	28,079		25,480
Net operating losses	34,274		29,469
Other	1,328		8,721
Gross deferred tax assets	1,352,950		1,009,604
Valuation allowance	(146,268)		(132,689)
Total deferred tax assets	1,206,682		876,915
Deferred tax liabilities:
US tax on foreign earnings	(245,074)		(286,625)
Right of use asset	(12,935)		(12,383)
Other	(2,881)		(3,037)
Total deferred tax liabilities	(260,890)		(302,045)
Net deferred tax assets	$	945,792	$	574,870

The following table presents the breakdown between non-current deferred tax assets and liabilities (in thousands):

	December 31,
	2023		2022
Deferred tax assets, non-current	$	945,792	$	574,912
Deferred tax liabilities, non-current	—		(42)
Total net deferred tax assets	$	945,792	$	574,870

As of December 31, 2023, we had $246.5 million and $137.6 million of net operating loss carryforwards for federal and state income tax purposes, respectively, from acquisitions. These federal and state losses will begin to expire in 2028 and 2029, respectively. We do not have any material foreign net operating losses.

As of December 31, 2023, our federal, state and foreign tax credit carryforwards for income tax purposes before valuation allowances were approximately $2.8 million, $217.3 million and $1.2 million, respectively. Our federal tax credit will begin to expire in 2038, and our foreign tax credit will begin to expire in 2034, while our state tax credits can be carried over indefinitely. We have provided a valuation allowance of $146.3 million for deferred tax assets, primarily related to state and foreign tax credit carryforwards that we do not believe are more likely than not to be realized.

Utilization of the net operating losses and tax credit carryforwards may be subject to limitations due to ownership change limitations provided in the Internal Revenue code and similar state or foreign provisions.

The Tax Cuts and Jobs Act enacted on December 22, 2017 requires a Transition Tax on previously untaxed accumulated and current foreign earnings. Correspondingly, all undistributed earnings are deemed to be taxed and distributions of the unremitted earnings do not have any significant U.S. federal income tax impact. We have not provided for any remaining tax effect, if any, of limited outside basis differences of our foreign subsidiaries based upon plans of future reinvestment. The determination of the future tax consequences of the remittance of these earnings is not practicable.

Uncertain Tax Positions

We recognize uncertain tax positions only to the extent that management believes that it is more likely than not that the position will be sustained. The reconciliation of the beginning and ending amount of gross unrecognized tax benefits as of December 31, 2023, 2022 and 2021 is as follows (in thousands):

	Year Ended December 31,
	2023		2022		2021
Gross unrecognized tax benefits—beginning balance	$	137,357	$	114,813	$	92,500
Increases related to tax positions taken in a prior year	4,690		1,566		2,476
Increases related to tax positions taken during current year	39,895		25,355		21,104
Decreases related to tax positions taken in a prior year	(513)		(3,781)		(853)
Decreases related to lapse of statute of limitations	(18,163)		(596)		(414)
Gross unrecognized tax benefits—ending balance	$	163,266	$	137,357	$	114,813

As of December 31, 2023, 2022 and 2021, the total amount of gross unrecognized tax benefits was $163.3 million, $137.4 million and $114.8 million, respectively, of which $90.0 million, $79.3 million and $60.9 million would affect our effective tax rate if recognized.

Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2023 and 2022, the net expense for interest and penalties and the recognized liability for interest and penalties were not material.

The statute of limitations for Federal and most states remains open for 2017, 2020 and forward. Some states have net operating loss and tax credit carryforwards, and therefore remain open to examination. The majority of our foreign tax returns are open to audit under the statute of limitations of the respective foreign countries where the subsidiaries are located. It is possible that the amount of existing gross unrecognized tax benefits may decrease within the next 12 months as a result of statute of limitation lapses or payments to tax authorities in certain jurisdictions. However, any such changes are not anticipated to be material.