Income Taxes

The domestic and foreign components of pre-tax loss for the years ended January 31, 2018, 2017 and 2016 are as follows (in thousands):



	Year Ended January 31,
	2018			2017			2016
Domestic	$	(117,368	)	$	(84,938	)	$	(76,953	)
Foreign	2,688			1,854			946
Loss before provision for (benefit from) income taxes	$	(114,680	)	$	(83,084	)	$	(76,007	)

The components of the provision for (benefit from) income taxes for the years ended January 31, 2018, 2017 and 2016 are as follows (in thousands):



	Year Ended January 31,
	2018			2017			2016
Current:
Federal	$	—		$	—		$	—
State	—			18			—
Foreign	183			426			295
Total current provision for income taxes	$	183		$	444		$	295
Deferred:
Federal	$	(32	)	$	60		$	60
State	10			6			6
Foreign	(482		)	(85		)	(66		)
Total deferred provision for (benefit from) income taxes	$	(504	)	$	(19	)	$	—
Total provision for (benefit from) income taxes	$	(321	)	$	425		$	295

As a result of the Company’s history of net operating losses and full valuation allowance against its deferred tax assets, the income tax provision was related to foreign taxes and tax amortization of goodwill for the years ended January 31, 2018, 2017 and 2016. For the year ended January 31, 2018, the income tax benefit resulted from $1.3 million of excess tax deductions related to option exercises by foreign employees, a portion of which we intend to use to claim a refund of taxes paid in prior years.

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended January 31, 2018, 2017 and 2016:



	Year Ended January 31,
	2018		2017		2016
Tax at federal statutory rate	33.8	%	34.0	%	34.0	%
State income taxes, net of federal benefit	3.3		3.3		2.7
Change in valuation allowance	(23.5	)	(32.4	)	(33.8	)
Stock-based compensation	39.9		(4.5	)	(3.1	)
Tax Cuts and Jobs Act of 2017	(53.2	)	—		—
Other, net	(0.1	)	(0.9	)	(0.2	)
Effective tax rate	0.2	%	(0.5	)%	(0.4	)%

The tax effects of temporary differences and related deferred tax assets and liabilities as of January 31, 2018 and 2017 are as follows (in thousands):



	As of January 31,
	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	123,013		$	98,587
Stock-based compensation	7,926			3,611
Deferred revenue	1,391			4,497
Other reserves and accruals	3,084			3,768
Credits	791			625
Total deferred tax assets	136,205			111,088
Valuation allowance	(125,874		)	(98,379		)
Total deferred tax assets, net	10,331			12,709
Deferred tax liabilities:
Deferred commissions	(6,849		)	(8,802		)
Capitalized internal-use software costs	(2,389		)	(2,816		)
Goodwill	(175		)	(196		)
Depreciation and amortization	(441		)	(953		)
Total deferred tax liabilities	(9,854		)	(12,767		)
Net deferred tax assets (liabilities)	$	477		$	(58	)

As a result of continuing losses, the Company has determined that it is not more likely than not that it will realize the benefits of the U.S. deferred tax assets and, therefore, the Company has recorded a valuation allowance to reduce the carrying value of the U.S. deferred tax assets, net of U.S. deferred tax liabilities, to approximately zero. The U.S. valuation allowance increased by $27.5 million and $26.9 million during the years ended January 31, 2018 and 2017, respectively.

As of January 31, 2018 and 2017, the Company had approximately $490.6 million and $264.7 million, respectively, of federal and $295.6 million and $164.2 million, respectively, of state net operating loss carryforwards available to offset future taxable income. If not utilized, the federal and state net operating loss carryforwards will begin to expire in 2029 and 2021, respectively. As of January 31, 2018, the Company had approximately $2.3 million of UK net operating losses which do not expire.

As of January 31, 2018, the Company had federal and California research and development tax credit carryforwards of $6.2 million and $5.6 million, respectively. The federal research and development credits will start to expire in 2030 while the California research and development credits do not expire. The Company has California Enterprise Zone credits of $1 million that begin to expire in 2023.

The Company attributes net revenue, costs and expenses to domestic and foreign components based on the terms of its agreements with its subsidiaries. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are to be reinvested offshore indefinitely. If the Company repatriated these earnings, the resulting income tax liability would be insignificant. The Company is subject to taxation in the United States and various states and foreign jurisdictions.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease to 21% effective for tax years beginning after December 31, 2017. This change in tax rate resulted in a reduction in our net U.S. deferred tax assets before valuation allowance by $61.0 million, which was fully offset by a reduction in our valuation allowance. The Tax Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits, or E&P. Our preliminary calculations show that we had negative net undistributed foreign E&P and are not subject to the deemed mandatory repatriation of year end. The other provisions of the Tax Act did not have a material impact on our consolidated financial statements as of January 31, 2018.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Although the rate reduction is known, the impact of the change is based on estimates of our net U.S. deferred tax assets before valuation allowance as of January 31, 2018. Additionally, potential further guidance may be forthcoming from the Financial Accounting Standards Board and the Securities and Exchange Commission, as well as regulations, interpretations and rulings from federal and state tax agencies, which could result in additional impacts.

The Tax Act contains a number of additional provisions which may impact the Company in future years. However, since the Tax Act was recently finalized and ongoing guidance and accounting interpretation is expected over the next 12 months, the Company has not yet elected any changes to accounting policies and the Company’s analysis is ongoing. Provisional accounting impacts may change in future reporting periods until the accounting analysis is finalized, which will occur no later than one year from the date the Tax Act was enacted.

The Company’s ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws.

A reconciliation of beginning and ending amount of unrecognized tax benefit is as follows (in thousands):



	Year Ended January 31,
	2018		2017		2016
Gross amount of unrecognized tax benefits as of the beginning of the year	$	5,775	$	3,512	$	1,889
Additions based on tax positions related to current year	5,944		2,263		1,623
Gross amount of unrecognized tax benefits as of the end of the year	$	11,719	$	5,775	$	3,512

The material jurisdictions in which the Company is subject to potential examination include the United States, California and the United Kingdom. Due to the Company’s net operating loss carryforwards, all tax years since inception remain subject to examination by federal and California taxing authorities. For the United Kingdom, the Company has an open examination for fiscal year 2016, but is no longer subject to examinations for fiscal years prior to 2016.

As of January 31, 2018, 2017 and 2016, the Company had unrecognized tax benefits which would not impact the effective tax rate because of the valuation allowance. The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes. The Company does not have any uncertain tax positions as of January 31, 2018 for which it is reasonably possible that the positions will increase or decrease within the next twelve months. As of January 31, 2018 and 2017, the Company has not accrued any interest or penalties related to unrecognized tax benefits.