On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of

taxable income for taxable years beginning before 2021. In addition, the CARES Act allows net operating losses (NOLs) incurred in fiscal 2021, 2020 and 2019 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We anticipate a carryback of our current year U.S. federal NOL to the fiscal tax year ended July 31, 2015, and forward. The carryback has been determined using a statutory tax rate of 35%, which resulted in the recognition of a $10,864 tax benefit during fiscal 2020.

On December 22, 2017, the U.S. government enacted wide-ranging tax legislation, the Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act significantly revised U.S. tax law by, among other provisions, (a) lowering the applicable U.S. federal statutory income tax rate from 35% to 21%, (b) creating a partial territorial tax system that includes imposing a mandatory one-time transition tax on previously deferred foreign earnings, (c) creating provisions regarding the (1) Global Intangible Low Tax Income (“GILTI”), (2) the Foreign Derived Intangible Income (“FDII”) deduction, and (3) the Base Erosion Anti-Abuse Tax (“BEAT”), and (d) eliminating or reducing certain income tax deductions, such as interest expense, executive compensation expenses and certain employee expenses.

Due to the complexity and significance of the 2017 Tax Act’s provisions, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allows companies to record the tax effects of the 2017 Tax Act on a provisional basis and then, if necessary, subsequently adjust such amounts during a limited measurement period as more information becomes available. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year from enactment. As a result, we provided a provisional estimate of the effect of the 2017 Tax Act for the fiscal year ended July 31, 2018, and recorded a net benefit of $8,657 due to the impact on our deferred taxes on the basis of the actual fiscal 2018 results of operations. The measurement period provided by SAB 118 concluded during the second quarter of fiscal 2019, and no material adjustments were made to the provisional estimates recorded.

Section 15 of the Internal Revenue Code (the “Code”) governs rate changes and was not amended by the 2017 Tax Act. Section 15 requires a blended tax rate for fiscal-year taxpayers for their fiscal year that includes the effective date of the rate change, which was January 1, 2018. As a result of the 2017 Tax Act, we revised our estimated annual effective rate to reflect the change in the U.S. federal statutory rate by computing a tentative tax under both rates, and then prorating the tentative tax based on the number of days with and without the rate change to arrive at a blended tax rate of 26.9%, as required by the Code. This blended rate was applied for fiscal 2018 (beginning with the second quarter) and the new U.S. federal statutory rate of 21% applied to fiscal 2019 and beyond.


	Year Ended July 31,
	2020						2019						2018
	Current		Deferred		Current		Deferred		Current		Deferred
United States:
Federal	$	(28,696)	$	17,872	$	13,494	$	683	$	24,288	$	(7,308)
State	902		(516)		3,976		(15)		5,078		491
International	5,687		(2,005)		4,869		(2,730)		4,626		(703)
Total	$	(22,107)	$	15,351	$	22,339	$	(2,062)	$	33,992	$	(7,520)


	Year Ended July 31,
	2020		2019		2018
Expected statutory tax⁽¹⁾	21.0	%	21.0	%	26.9	%
Differential attributable to:
Foreign operations	16.0	%	0.3	%	0.6	%
State and local taxes	13.7	%	4.8	%	3.7	%
U.S. permanent items	5.3	%	1.9	%	(1.5)	%
Tax reserves	11.3	%	—	%	—	%
U.S Federal tax legislation	(156.3)	%	(0.1)	%	(7.4)	%
R&E tax credit	(26.9)	%	(1.0)	%	(0.7)	%
U.S. foreign inclusions	(2.9)	%	(0.8)	%	—	%
Excess tax benefits	6.9	%	(0.7)	%	(1.7)	%
Valuation allowance	16.8	%	0.1	%	2.4	%
Other	(2.1)	%	1.4	%	0.2	%
Consolidated effective income tax rate	(97.2)	%	26.9	%	22.5	%


	July 31,
	2020		2019
Deferred tax assets:
Accrued expenses	$	4,244	$	4,175
Inventories	6,256		5,408
Accounts receivable	693		593
Other long-term liabilities	110		211
Stock-based compensation	3,691		3,586
Capital investment	426		426
Tax credits	2,421		—
Domestic NOLs	2,705		137
Foreign NOLs	11,158		10,284
Subtotal	31,704		24,820
Valuation allowance	(8,163)		(5,701)
	23,541		19,119
Deferred tax liabilities:
Property and equipment	(22,790)		(11,342)
Intangible assets	(21,286)		(21,156)
Goodwill	(15,021)		(11,618)
Convertible debt discount	(9,190)		—
	(68,287)		(44,116)
Net deferred income taxes	$	(44,746)	$	(24,997)

Reported in Consolidated Balance Sheets as:
Deferred income taxes (assets)	$	4,787	$	4,281
Deferred income taxes (liabilities)	(49,533)		(29,278)
	$	(44,746)	$	(24,997)

For state reporting purposes, our NOLs at July 31, 2020 and 2019 are $2,705 and $137, respectively. For foreign tax reporting purposes, our NOL’s at July 31, 2020 and 2019 are $11,158 and $10,284, respectively. Most of these NOLs do not expire and are fully available for utilization against future profits in the U.S. and in non-U.S. tax jurisdictions. We recorded a valuation allowance against a portion of the foreign NOLs in the amount of $6,796 and $5,701 as of July 31, 2020 and 2019, respectively, For fiscal 2020, the valuation allowance was comprised mainly of $1,979 relating to our German operations, $2,628 relating to pre-acquisition losses attributable to our U.K. operation and $1,319 relating to the exit of the Jet Prep business. We believe it is more likely than not that we will be unable to utilize these NOLs.

During fiscal 2020 and 2019, no dividends were repatriated from our foreign subsidiaries. As a result of the mandatory one-time transition tax required under the 2017 Tax Act, all of the undistributed earnings of our foreign subsidiaries are deemed repatriated and considered previously taxed income (“PTI”). Additionally, we continue to be indefinitely reinvested and continue to evaluate our assertion for certain legal entities. Accordingly, deferred taxes are not provided on undistributed earnings of foreign subsidiaries that are indefinitely reinvested. Determining the tax liability that would arise if these earnings were remitted is not practicable. As of July 31, 2020 and 2019, the cumulative amount of such undistributed earnings, inclusive of PTI, indefinitely reinvested outside the U.S. was approximately $49,612 and $45,566, respectively.

We record liabilities for an unrecognized tax benefit when a tax benefit for an uncertain tax position is taken or expected to be taken on a tax return, but is not recognized in our consolidated financial statements because it does not meet the more-likely-than-not recognition threshold that the uncertain tax position would be sustained upon examination by the applicable taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities. Any adjustments upon

resolution of income tax uncertainties are recognized in our results of operations. Our policy is to record potential interest and penalties related to income tax positions in income tax expense in our consolidated financial statements. However, such amounts have been relatively insignificant due to the nominal amount of our unrecognized tax benefits relating to uncertain tax positions. There were no unrecognized tax benefits recorded in fiscal 2018. A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:


	Unrecognized Tax Benefits⁽¹⁾
Balance, July 31, 2018	$	—

Additions for tax positions of prior years	432
Balance, July 31, 2019	432
Lapses in statutes of limitations	(8)
Additions for tax positions of prior years	302
Foreign currency translation	20
Balance, July 31, 2020	$	746

Although we remain subject to audit by the IRS for fiscal years ended July 31, 2016 and forward, we are not currently under IRS audit. With respect to state or foreign income tax examinations, we are generally no longer subject to examinations for fiscal years ended prior to July 31, 2014.