Income Taxes

9 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The Company’s provision for income taxes during the interim periods is determined using an estimate of the Company’s annual effective tax rate, which is adjusted for certain discrete tax items during the interim period.

For the three and nine months ended March 31, 2023, the Company's income tax provision was not material, respectively. The income tax provision reflects application of the Tax Cuts and Jobs Act of 2017 effective fiscal year 2023 and thereafter, that requires companies to capitalize and amortize research and development expenses rather than deduct the costs as incurred. Research and development expenses are capitalized and amortized over five years for domestic research and fifteen years for international research. The requirement increases the Company's current year cash tax liabilities, however, the cash flow impact is expected to decrease over time as capitalized research and development expenses continue to amortize.

The Company’s effective tax rate differs from the federal statutory rate primarily due to its federal, state and foreign valuation allowance positions. The income tax provision during the three and nine months ended March 31, 2023 consisted primarily of an estimated cash tax liability associated with the mandatory capitalization of R&D costs for federal and certain state tax purposes for the year ending June 30, 2023 (applicable to U.S. corporations with tax years starting after December 31, 2021), partially offset by a reduction to the net deferred tax liability as a result of the Company's current year losses.

The Company is subject to income tax audits in the U.S., Australia, and Canada. The Company records liabilities related to uncertain tax positions, which provide adequate reserves for income tax uncertainties in all open tax years. Due to the Company’s history of tax losses, all years remain open to tax audit. The Company’s management evaluates the realizability of the Company’s deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is dependent on the Company’s ability to generate sufficient future taxable income during the foreseeable future.

In December 2022, the Internal Revenue Service initiated an audit of Divvy's pre-acquisition tax year ending December 31, 2020, which is in process as of March 31, 2023.