Income Taxes

3 Months Ended

Jan. 26, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Applied’s provision for income taxes and effective tax rate are affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates and other income tax incentives. It is also affected by events that are not consistent from period to period, such as changes in income tax laws and the resolution of prior years’ income tax filings.

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act). The Tax Act includes provisions that impact Applied starting in fiscal 2019, including a provision designed to tax global intangible low-taxed income (GILTI). As a result, Applied realized a tax benefit of $46 million in the first quarter of fiscal 2019. On June 14, 2019, the U.S. government released regulations that significantly affect how the GILTI provision of the Tax Act is interpreted. Accordingly, Applied reversed the tax benefit that had been realized in the first half of fiscal 2019.

Applied’s effective tax rates for the first quarter of fiscal 2020 and 2019 were 11.2 percent and 13.2 percent, respectively. The effective tax rate for the first quarter of fiscal 2020 was lower than the same period in the prior fiscal year primarily due to changes in uncertain tax positions and excess tax benefits from share-based compensation. This was partially offset by an increase in tax expense in the first quarter of fiscal 2020 due to the tax benefit taken for GILTI in the first quarter of fiscal 2019 prior to the release of regulations on June 14, 2019 which resulted in the benefit no longer being realizable.