Income Taxes

12 Months Ended

Jan. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The domestic and foreign components of pre-tax loss for fiscal 2023, 2022 and 2021 were as follows:

	Year Ended January 31,
	2023		2022		2021
	(dollars in millions)
Domestic	$	(834)	$	(904)	$	(282)
Foreign	33		54		16
Loss before provision for (benefit from) income taxes	$	(801)	$	(850)	$	(266)

The components of the provision for (benefit from) income taxes for fiscal 2023, 2022 and 2021 were as follows:

	Year Ended January 31,
	2023		2022		2021
	(dollars in millions)
Current:
Federal	$	—	$	—	$	—
State	2		—		—
Foreign	5		4		1
Total current provision for income taxes	7		4		1
Deferred:
Federal	—		(8)		—
State	—		(1)		—
Foreign	7		3		(1)
Total deferred provision for (benefit from) income taxes	7		(6)		(1)
Total provision for (benefit from) income taxes	$	14	$	(2)	$	—

For fiscal 2023, the income tax expense resulted primarily from income tax expense related to profitable foreign jurisdictions, the tax impact of shortfalls from stock-based compensation in the United Kingdom, and state taxes. For fiscal 2022, the income tax benefit resulted from the release of valuation allowance in the United States in connection with acquisitions and excess tax benefits from stock-based compensation in the United Kingdom, offset by income tax expense related to profitable foreign jurisdictions. For fiscal 2021, the income tax expense from profitable jurisdictions was partially offset by excess tax benefits from stock-based compensation in the United Kingdom.

 The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for fiscal 2023, 2022 and 2021:

	Year Ended January 31,
	2023		2022		2021
Tax at federal statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	3.6		3.9		4.1
Change in valuation allowance	(9.9)		(36.1)		(101.0)
Stock-based compensation	(12.3)		8.4		70.2
Research and development credits	2.6		3.6		6.4
Non-deductible expenses	(5.4)		—		—
Other, net	(1.2)		(0.6)		(0.8)
Effective tax rate	(1.6)	%	0.2	%	(0.1)	%

The Tax Cuts and Jobs Act enacted on December 22, 2017 amended Internal Revenue Code Section 174 to require that specific research and experimental (“R&E”) expenditures be capitalized and amortized over five years (U.S. R&E) or fifteen years (non-U.S. R&E) beginning in fiscal 2023. The capitalization of R&E expenditures resulted in a deferred tax asset of $189 million. Additionally, the effective tax rate was impacted by (5.4)% due to

certain tax deductions being disavowed, which further resulted in the utilization of federal and state tax attributes to offset this impact.

The tax effects of temporary differences and related deferred tax assets and liabilities as of January 31, 2023 and 2022 were as follows:

	As of January 31,
	2023		2022
	(dollars in millions)
Deferred tax assets:
Net operating loss carryforwards	$	817	$	955
Capitalized research expenditures	189		—
Stock-based compensation	52		48
Operating lease liabilities	43		50
Other reserves and accruals	31		40
Research and development and other credits	113		92
Total deferred tax assets	1,245		1,185
Valuation allowance	(1,078)		(904)
Total deferred tax assets, net	167		281
Deferred tax liabilities:
Convertible debt	—		(91)
Deferred commissions	(77)		(68)
Other deferred tax liabilities	(5)		(3)
Operating lease right-of-use assets	(31)		(37)
Depreciation and amortization	(56)		(78)
Total deferred tax liabilities	(169)		(277)
Net deferred tax assets (liabilities)	$	(2)	$	4

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. The U.S. valuation allowance increased by $174 million and $349 million during fiscal 2023 and 2022, respectively.

As of January 31, 2023, the Company had approximately $3,208 million of federal and $2,108 million 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 2023, respectively. As of January 31, 2023, the Company had approximately $46 million of UK net operating losses which do not expire.

As of January 31, 2023, the Company had federal research and development tax credit carryforwards of $98 million and California research and development tax credit carryforwards of $65 million. The federal research and development credits will start to expire in 2030 while the California research and development credits do not expire.

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 future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws.

Accounting guidance for income taxes requires a deferred tax liability to be established for the U.S. tax impact of undistributed earnings of foreign subsidiaries unless it can be shown that these earnings will be permanently reinvested outside the U.S. If the Company repatriated its accumulated foreign earnings, any deferred income taxes for the estimated U.S. income tax, foreign income tax, and applicable withholding taxes on earnings of subsidiaries is insignificant.

A reconciliation of beginning and ending amount of unrecognized tax benefit was as follows:

	Year Ended January 31,
	2023		2022		2021
	(dollars in millions)
Gross amount of unrecognized tax benefits as of the beginning of the year	$	37	$	22	$	16
Additions based on tax positions related to a prior year	1		5		—
Additions based on tax positions related to current year	7		10		7
Reductions based on tax positions taken in a prior year	(2)		—		(1)
Gross amount of unrecognized tax benefits as of the end of the year	$	43	$	37	$	22

The Company is subject to taxation in the U.S. and various other state and foreign jurisdictions. As the Company has net operating loss carryforwards for the U.S. federal and state jurisdictions, the statute of limitations is open for all years. For material foreign jurisdictions, the tax years open to examination include the tax years 2017 and forward.

As of January 31, 2023 and 2022, the Company has an immaterial amount of unrecognized tax benefits that if recognized would impact the effective tax rate. As of January 31, 2021, the Company had no unrecognized tax benefits that if recognized would impact the effective tax rate. The Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of January 31, 2023, 2022 and 2021, the Company has not accrued a material amount in interest and penalties related to unrecognized tax benefits. The Company does not have any significant uncertain tax positions as of January 31, 2023 for which it is reasonably possible that the positions will increase or decrease within the next twelve months.