Income Taxes

6 Months Ended

Jul. 31, 2022

Income Taxes

Income Taxes

8. Income Taxes

The Company’s provision for income taxes for the three and six months ended July 31, 2022 and 2021 is based on the estimated annual effective tax rate, in addition to discrete items.

The Company changed its permanent reinvestment assertions for its Chinese operations during the second quarter due to increased volatility of the Chinese yuan and an updated evaluation of investment strategies. The Company recorded $2 million in withholding taxes for a planned repatriation. Going forward, any adjustments to this provision will be reflected through current tax expense.

The Company's effective tax rate for the second quarter of FY23 was 149.9%. As noted above the Company recorded $2 million in withholding taxes due to a change in its’ permanent reinvestment assertion related to China. Excluding this discrete expense, the effective rate was 35.0% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and Global Intangible Low-Taxed Income (“GILTI”). The Company's effective tax rate for the second quarter of FY22 was 26.9% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and state income taxes. 

The Company's effective tax rate for the six months ended July 31, 2022 was 91.8%. In addition to the $2 million discrete item above, in Q1 FY23, the Company recorded deferred tax benefits of $0.2 million related to accruals for China social taxes based on our evaluation of the deductibility of these items. Excluding these discrete items, the effective rate was 34.1% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and GILTI. The Company's effective tax rate for the six months ended July 31, 2021 was 25.4% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions, state income taxes and the discrete item discussed above.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. The valuation allowance was $3.7 million and $3.2 million at July 31, 2022 and January 31, 2022, respectively.