Income Taxes

9 Months Ended

Oct. 31, 2022

Income Taxes

Income Taxes

8. Income Taxes

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

The Company's effective tax rate for the third quarter of FY23 was 33.3% 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 third quarter of FY22 was 31.4% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and state income taxes

In Q2 FY23 the Company changed its permanent reinvestment assertions for its Chinese operations 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 nine months ended October 31, 2022 was 68.1%.  In addition to the $2 million in withholding taxes discussed 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 33.8% 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 nine months ended October 31, 2021 was 27.1% 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 October 31, 2022 and January 31, 2022, respectively.