Income Taxes

12 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The components of loss before (benefit from) provision for income taxes were as follows during the periods presented (in thousands):

	Year ended June 30,
	2022		2021		2020
Domestic	$	(304,508)	$	(139,337)	$	(31,038)
Foreign	(26,171)		—		—
Total	$	(330,679)	$	(139,337)	$	(31,038)

The components of (benefit from) provision for income taxes were as follows during the periods presented (in thousands):

	Year ended June 30,
	2022		2021		2020
Current:
Federal	$	(247)	$	—	$	—
State	—		—		53
Foreign	—		—		—
Total current	(247)		—		53
Deferred:	—		—		—
Federal	(1,115)		(27,529)		—
State	(2,956)		(13,088)		—
Foreign	—		—		—
Total deferred	(4,071)		(40,617)		—
(Benefit from) provision for income taxes	$	(4,318)	$	(40,617)	$	53

The items accounting for the difference between the income taxes computed at the federal statutory rate and the (benefit from) provision for income taxes consisted of the following during the periods presented (in thousands):

	Year ended June 30,
	2022		2021		2020
Expected benefit at U.S. federal statutory rate	$	(69,443)	$	(29,261)	$	(6,518)
State income taxes, net of federal benefit	13,509		(54)		—
Stock-based compensation	(93,705)		(70,262)		(31,047)
Research and development tax credits	(22,061)		(8,846)		(6,411)
Change in valuation allowance related to acquisition (1)	(2,831)		(34,749)		—
Change in valuation allowance (2)	174,477		94,244		43,716
Unrecognized tax benefit	(10,975)		6,766		—
Acquisition-related costs	553		1,484		—
Foreign rate differential	5,496		—		—
Other	662		61		313
(Benefit from) provision for income taxes	$	(4,318)	$	(40,617)	$	53

(1) The rate impact during the years ended June 30, 2022 and 2021 pertains to the income tax benefit recorded as a result of the acquisitions of Invoice2go of Divvy, which allowed the Company to release a portion of its valuation allowance due to the net deferred tax liabilities that were recorded as a result of such acquisitions.

(2) The rate impact during the year ended June 30, 2022 and 2021 pertains to (i) an increase in valuation allowance due to the increase in deferred tax assets associated with losses and tax credits generated during the year, (ii) a change in deferred tax liability related to the 2025 Notes, and (iii) a change in deferred tax liability related to the acquisitions of Invoice2go and Divvy.

The components of deferred tax assets and liabilities were as follows as of the dates presented (in thousands):

	June 30,
	2022		2021
Deferred tax assets:
Accruals and reserves	$	9,325	$	8,677
Deferred revenue	1,794		1,109
Stock-based compensation	25,897		16,626
Net operating loss carryforwards	410,849		218,783
Research and development credits	46,013		15,864
Accrued rewards	2,867		1,342
Operating lease liabilities	24,203		25,122
Other	3,247		514
Total deferred tax assets before valuation allowance	524,195		288,037
Valuation allowance	(384,158)		(107,836)
Deferred tax assets	$	140,037	$	180,201
Deferred tax liabilities:
Deferred contract costs	$	(3,745)	$	(2,763)
Property and equipment	(19,316)		(3,133)
Intangible assets	(99,483)		(107,631)
Operating right of use assets	(19,490)		(18,551)
Convertible notes	—		(57,213)
Total deferred tax liabilities	$	(142,034)	$	(189,291)
Net deferred tax liabilities	$	(1,997)	$	(9,090)

ASC 740 requires that the tax benefit of net operating losses, temporary differences, and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance. The change in valuation allowance was approximately $276.3 million, $22.3 million and $52.3 million during the years ended June 30, 2022, 2021 and 2020, respectively. The increase in the June 30, 2022 valuation allowance is a result of current year losses, offset by a reduction in a deferred tax liabilities.

The Tax Cuts and Job Act subjects a U.S. company to tax on its Global Intangible Low Tax Income (GILTI). Under U.S.GAAP, the Company can make an accounting policy election to either treat taxes due on the GILTI inclusion as a current period expense or factor such amounts into the measurement of deferred taxes. The Company elected the period expense method.

The Company does not currently operate under any tax holiday in any country in which it operates.

The Company does not have foreign earnings available to distribute. As such, there is no unrecorded deferred tax liability associated with an outside basis of foreign subsidiaries.

As of June 30, 2022, the Company had net operating loss (NOL) carryforwards of $1.5 billion, $1.1 billion, and $61.3 million for federal, state tax and foreign tax purposes, respectively, that are available to reduce future taxable income. If not utilized, the federal and state NOL carryforwards will begin to expire in 2027. As of June 30, 2022, approximately $1.4 billion and $61.3 million of federal and foreign NOL carryforwards, respectively, do not expire and will carry forward indefinitely until utilized. As of June 30, 2022, the Company also had research and development tax credit carryforwards of approximately $40.1 million and

$27.1 million for federal and state tax purposes, respectively. If not utilized, the federal tax credits will expire at various dates beginning in 2028. The state tax credits do not expire and will carry forward indefinitely until utilized.

Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and other similar state provisions. The annual limitation may result in the expiration of net operating losses and tax credits before utilization.

Below is the reconciliation of the unrecognized tax benefits related to federal and California R&D credits during the periods presented (in thousands):

	Year e ded June 30,
	2022		2021		2020
Balance at the beginning of the year	$	22,185	$	5,787	$	2,692
Add:
Tax positions related to the current year	7,354		8,267		3,078
Increase from business combination	160		668		—
Tax positions related to the prior year	—		7,463		17
Less:
Tax positions related to the prior year	(12,761)		—		—
Statute of limitations lapse	(214)		—		—
Balance at the end of the year	$	16,724	$	22,185	$	5,787

The amount of interest and penalties accrued as of June 30, 2022 and June 30, 2021 were not material.

If the balance of gross unrecognized tax benefits of $16.7 million as of June 30, 2022 were realized, this would result in an immaterial tax benefit within the provision for income taxes at that time.

The Company files U.S. federal, California, and other various state income tax returns. All U.S. federal and state net operating losses and tax credits generated to date are subject to adjustments. The Company does not anticipate any material change on its unrecognized tax benefits over the next twelve months. If the unrecognized tax benefits as of June 30, 2022 is recognized, it will not have an impact to the effective tax rate due to the Company’s valuation allowance. The Company’s U.S. federal and state tax returns for all years remain subject to examination by taxing authorities as a result of unused tax attributes being carried forward.