XML 32 R20.htm IDEA: XBRL DOCUMENT v3.10.0.1
Income Taxes and Other Taxes
6 Months Ended
Nov. 30, 2018
Income Tax And Non Income Tax Disclosure [Abstract]  
Income Taxes and Other Taxes
INCOME TAXES AND OTHER TAXES

Income Taxes
 
In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known and applies that rate to its year-to-date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in enacted tax laws or rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.

The Company’s annual effective tax rate, exclusive of discrete items, is expected to be approximately 29.1%. The interim effective tax rate, inclusive of discrete items, was 27.2% for the three month period ended November 30, 2018 and 31.3% for six month period ended November 30, 2018.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law resulting in a significant change in the framework for U.S. corporate taxes. The Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. The re-measurement of the Company's U.S. deferred tax balances, any transition tax and interpretation of the new law is provisional, subject to clarifications of the new legislation and final calculations.

The Act also subjects a U.S. shareholder to tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred.

Any future changes to the Company’s provisional estimates, related to the Act, will be reflected as a change in estimate in the period in which the change in estimate is made in accordance with ASU 2018-05 Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 118. ASU 2018-05 allows for a measurement period of up to one year after the enactment date of the Act to finalize the recording of the related tax impacts.
 
The Company performed a preliminary assessment of the impact of GILTI and does not believe there will be a significant impact as a result of this provision and has elected to recognize the tax on GILTI as a period expense as incurred. In addition, due to the fact that the Company's international operating results do not exceed certain thresholds defined by the Act, the Company is not expecting the remaining provisions of the Act, including the foreign derived intangible income (FDII) and the base erosion and anti-abuse tax (BEAT), to be applicable. The Company does not expect to incur a one-time transition tax on earnings of foreign subsidiaries. The Company will finalize the accounting related to the Act in the third quarter of fiscal 2019.

The Company, including its domestic subsidiaries, files a consolidated U.S. income tax return, and also files tax returns in various states and other local jurisdictions. Also, certain subsidiaries of the Company file income tax returns in foreign jurisdictions. The Company is routinely audited by various tax authorities.

Non-income Taxes
 
The Company is subject to tax examinations for sales-based taxes. A number of these examinations are ongoing and, in certain cases, have resulted in assessments from taxing authorities. The Company assesses sales tax contingencies for each jurisdiction in which it operates, considering all relevant factors including statutes, regulations, case law and experience. Where a sales tax liability in respect to a jurisdiction is probable and can be reasonably estimated for such jurisdiction, the Company has made accruals for these matters which are reflected in the Company’s Condensed Consolidated Financial Statements. These amounts are included in Selling, general and administrative expenses. Future developments relating to the foregoing could result in adjustments being made to these accruals.

The State of Wisconsin has assessed Scholastic Book Fairs, Inc. (“SBF”), a wholly owned subsidiary of the Company, $5.4, exclusive of penalties and interest, for sales tax in fiscal years 2003 through 2014. Based upon the facts and circumstances and the relevant laws in the State of Wisconsin, the Company does not believe these assessments are merited and believes it could prevail in litigating this matter. However, the Company has engaged in discussions with the state to resolve this matter and has recorded a charge related to a proposed settlement of this assessment.