Income Taxes

12 Months Ended

Jul. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 12. INCOME TAXES

Income Taxes

Loss before provision for income taxes by fiscal year consisted of the following:

	Fiscal Year Ended July 31,
	2020			2021			2022
	(in thousands)
Domestic	$	(905,840	)	$	(1,066,307	)	$	(833,507	)
Foreign		50,619			50,534			55,233
Loss before provision for income taxes	$	(855,221	)	$	(1,015,773	)	$	(778,274	)

Provision for income taxes by fiscal year consisted of the following:

	Fiscal Year Ended July 31,
	2020			2021			2022
	(in thousands)
Current:
U.S. federal	$	175		$	9		$	13
State and local		79			99			77
Foreign		18,033			21,801			21,578
Total current taxes		18,287			21,909			21,668
Deferred:
U.S. federal		80			24			23
State and local		—			—			—
Foreign		(705	)		(3,446	)		(2,427	)
Total deferred taxes		(625	)		(3,422	)		(2,404	)
Provision for income taxes	$	17,662		$	18,487		$	19,264

The income tax provision differs from the amount of income tax determined by applying the applicable U.S. federal statutory income tax rate of 21% to pre-tax loss. The reconciliation of the statutory federal income tax and our effective income tax is as follows:

	Fiscal Year Ended July 31,
	2020			2021			2022
	(in thousands)
U.S. federal income tax at statutory rate	$	(179,514	)	$	(213,391	)	$	(163,438	)
Change in valuation allowance		164,453			171,270			117,292
Non-deductible item on fair value remeasurement of    derivative liability		—			56,546			41,589
Stock-based compensation		30,913			4,663			14,462
Effect of foreign operations		12,676			9,851			11,210
Research and development tax credits		(19,210	)		(14,694	)		(9,455	)
Non-deductible expenses		5,393			1,739			6,646
Change in unrecognized tax benefit		1,863			2,631			655
State income taxes		79			99			77
Transfer pricing adjustments		7			—			—
Other		1,002			(227	)		226
Total	$	17,662		$	18,487		$	19,264

During the fiscal years ended July 31, 2020, 2021 and 2022, our provision for income taxes was primarily attributable to foreign tax provisions in certain foreign jurisdictions in which we conduct business.

The temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:

	As of July 31,
	2021			2022
	(in thousands)
Deferred tax assets:
Net operating loss carryforward	$	573,944		$	665,757
Tax credit carryforward		164,984			184,376
Deferred revenue		168,417			170,243
Leases		40,011			38,843
Interest expense carryforward		15,492			32,692
Intangible assets		28,557			25,403
Accruals and reserves		21,727			23,045
Stock-based compensation		18,957			17,631
Property and equipment		3,385			4,115
Other assets		26,394			23,412
Total deferred tax assets		1,061,868			1,185,517
Deferred tax liabilities:
Deferred commission expense		(83,054	)		(86,253	)
Leases		(38,368	)		(39,886	)
Convertible notes		(246	)		(38,925	)
Prepaid expenses		(2,013	)		(2,290	)
Property and equipment		(3,681	)		(1,271	)
Acquisition-related		(4,633	)		(1,224	)
Other		(2,764	)		(3,142	)
Total deferred tax liabilities		(134,759	)		(172,991	)
Valuation allowance		(918,689	)		(1,002,546	)
Net deferred tax assets	$	8,420		$	9,980

Management believes that based on available evidence, both positive and negative, it is more likely than not that the U.S. deferred tax assets will not be utilized and as such, a full valuation allowance has been recorded.

The valuation allowance for deferred tax assets was $1.0 billion as of July 31, 2022. The net increase in the total valuation allowance for the fiscal years ended July 31, 2021 and 2022 was $206.6 million and $83.9 million, respectively.

As of July 31, 2022, we had approximately $3.0 billion of federal net operating loss carryforwards and $1.8 billion of state net operating loss carryforwards available to reduce future taxable income, which will begin to expire in fiscal 2023. In addition, we had approximately $124.0 million of federal research credit carryforwards, $96.4 million of state research credit carryforwards and $12.1 million of foreign tax credit carryforwards. The federal credits will begin to expire in fiscal 2030 and the state credits can be carried forward indefinitely. The foreign credits will begin to expire in fiscal 2027.

Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. Any annual limitation may result in the expiration of net operating losses and credits before utilization. If an ownership change occurred, utilization of the net operating loss and tax credit carryforwards could be significantly reduced.

As of July 31, 2022, we held an aggregate of $165.9 million in cash and cash equivalents in our foreign subsidiaries, of which $73.1 million was denominated in U.S. dollars. We attribute net revenue, costs and expenses to domestic and foreign components based on the terms of our agreements with our subsidiaries. We do not provide for federal income taxes on the undistributed earnings of our foreign subsidiaries, as such earnings are to be reinvested offshore indefinitely. The income tax liability would be insignificant if these earnings were to be repatriated.

The income tax benefit and provision for the fiscal year ended July 31, 2022 are based on the assumption that foreign undistributed earnings are indefinitely reinvested. We will continue to evaluate whether or not to continue to assert indefinite reinvestment on part or all of our foreign undistributed earnings. In the event we determine not to continue to assert the permanent reinvestment of part or all of our foreign undistributed earnings, such a determination could result in the accrual and payment of additional foreign, state and local taxes.

The 2017 Tax Cuts and Jobs Act requires research and development expenditures incurred for the tax year beginning after December 31, 2021 to be capitalized and amortized ratably over five years for domestic research and 15 years for international research. The mandatory capitalization requirement should have no material impact on our income tax provision for the fiscal year ended July 31, 2023 due to our tax attributes carryover and full valuation allowance position. On August 16, 2022, President Biden signed the Inflation Reduction Act, which includes a new minimum tax on certain large corporations and an excise tax on stock buybacks. We do not anticipate this legislation to have a material impact on our consolidated financial statements.

We recognize uncertain tax positions in our financial statements if that position will more likely than not be sustained on audit, based on the technical merits of the position. A reconciliation of our unrecognized tax benefits, excluding accrued interest and penalties, is as follows:

	Fiscal Year Ended July 31,
	2021			2022
	(in thousands)
Balance at the beginning of the year	$	85,257		$	89,775
Increases related to current year tax positions		4,335			3,499
Increases related to prior year tax positions		328			604
Decreases related to prior year tax positions		—			(2,263	)
Lapse of statute of limitations/Settlements		(145	)		(942	)
Balance at the end of the year	$	89,775		$	90,673

During the fiscal year ended July 31, 2022, the net increase in unrecognized tax positions was primarily attributable to federal and state research and development credits and intercompany charges.

As of July 31, 2022, if uncertain tax positions are fully recognized in the future, it would result in a $14.4 million impact to our effective tax rate, primarily relating to positions in foreign jurisdictions, and the remaining amount would result in adjustments to deferred tax assets and corresponding adjustments to the valuation allowance.

We recognize interest and/or penalties related to income tax matters as a component of income tax expense. As of July 31, 2022, we had recognized $5.3 million of accrued interest and penalties related to uncertain tax positions.

We file income tax returns in the U.S. federal jurisdiction as well as various U.S. states and foreign jurisdictions. The tax years 2009 and forward remain open to examination by the major jurisdictions in which we are subject to tax. These fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years, which have been carried forward and may be audited in subsequent years when utilized. We are subject to the continuous examination of income tax returns by various tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of the provision for income taxes. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations. We do not anticipate a significant impact to the gross unrecognized tax benefits within the next 12 months related to these years.