15. Income Taxes

The following table presents the (benefit from) provision for income taxes and our effective tax rate for the three and six months ended January 31, 2014 and 2013:


	For the Three Months Ended January 31,						For the Six Months Ended January 31,
(in millions)	2014			2013			2014			2013
(Benefit from) provision for income taxes	$	(6.6	)	$	3.6		$	(8.6	)	$	5.7
Effective tax rate		-52	%		27	%		-124	%		29	%

The effective income tax rate is based upon the estimated income for the year, the composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolution of tax audits, tax contingencies or other discrete items.

Our effective tax rate before discrete items for the three and six months ended January 31, 2014, respectively, is lower than the statutory rate of 35%, primarily due to lower foreign tax rates, and tax credits in the U.S. and Canada. The tax provision for the three and six months ended January 31, 2014 includes certain discrete tax benefits totaling $10.2 million and $10.6 million, respectively. The discrete tax benefit for the three months ended January 31, 2014, consists primarily of a reduction in a net deferred tax liability of $8.8 million associated with a change in classification of our Canadian operations, and a reduction in uncertain tax positions primarily associated with federal tax credits for research and development, or R&D, for $0.9 million following the conclusion of the Internal Revenue Service, or IRS, review for the fiscal year 2009, along with $0.5 million of other items. For the six months ended January 31, 2014, the discrete benefit also includes a reduction of our valuation allowance for Massachusetts R&D credits and federal amended return claims, partially offset by changes in statutory tax rates in the jurisdictions in which we operate.

The effective tax rate for the three and six months ended January 31, 2013 was lower than the federal statutory rate due primarily to lower foreign tax rates and the extension of the federal R&D tax credit.

The effective tax rate was lower in the three months ended January 31, 2014 versus the prior year comparable period due in part to the relative impact of discrete items on each period’s pre-tax income, and the forecasted composition of the income in different countries. This decrease was offset in part by a lower federal R&D tax credit due to its expiration on December 31, 2013. The effective tax rate was lower in the six months ended January 31, 2014 versus the prior year comparable period, due to the impact of discrete items in fiscal year 2014.

The total amounts of gross unrecognized tax benefits, which excludes interest and penalties discussed below, as of January 31, 2014 and July 31, 2013 were as follows:


(in millions)	January 31, 2014		July 31, 2013
Gross unrecognized tax benefits	$	6.5	$	7.3

These unrecognized tax benefits, if recognized in a future period, the timing of which is not estimable, would favorably impact our effective tax rate. In the next four quarters, the statute of limitations for our fiscal year ended July 31, 2010 may expire for federal and state income taxes and for our fiscal year ended July 31, 2007 for foreign subsidiaries. It is reasonably expected that net unrecognized tax benefits, including interest, of approximately $0.9 million may be recognized.

We accrue interest and, if applicable, penalties for any uncertain tax positions. This interest and penalty expense is treated as a component of income tax expense. At January 31, 2014 and January 31, 2013, we had approximately $0.7 million and $0.7 million, respectively, accrued for interest and penalties on unrecognized tax benefits.

We do not provide for U.S. federal income taxes on undistributed earnings of consolidated foreign subsidiaries; as such earnings are intended to be indefinitely reinvested in those operations. Determination of the potential deferred income tax liability on these undistributed earnings is not practicable because such liability, if any, is dependent on circumstances that exist if and when remittance occurs. The circumstances that would affect the calculations would be the source location and amount of the distribution, the underlying tax rate already paid on the earnings, foreign withholding taxes and the opportunity to use foreign tax credits in the U.S.

We are subject to U.S. federal income tax as well as the income tax of multiple state and foreign jurisdictions. As of January 31, 2014, we have closed all years for U.S. federal income tax purposes through the year ended July 31, 2009.