Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the estimated future tax effects of temporary differences between book and tax treatment of assets and liabilities and carryforwards to the extent they are realizable. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In assessing the need for a valuation allowance, we consider future taxable income and ongoing prudent and feasible tax planning strategies. In the event that we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, a reduction of the valuation allowance would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, a reduction to the deferred tax asset would be charged to income in the period such determination was made.

We record a liability for uncertain tax positions that do not meet the more likely than not standard as prescribed by the authoritative guidance for income tax accounting. We record tax benefits for only those positions that we believe will more likely than not be sustained. Unrecognized tax benefits are the differences between tax positions taken, or expected to be taken, in tax returns, and the benefits recognized for accounting purposes. We classify uncertain tax positions as long-term liabilities.

Significant judgment is required in determining our worldwide provision for income taxes and our income tax filings are regularly under audit by tax authorities. Any audit result differing from amounts recorded would increase or decrease income in the period that we determine such adjustment is likely. Interest expense and penalties associated with the underpayment of income taxes are included in income tax expense.

Earnings before income taxes were as follows:

(in thousands)	For the Years Ended December 31,
	2021		2020		2019
Domestic	$	689,994	$	483,694	$	377,964
International	212,660		178,291		144,254
	$	902,654	$	661,985	$	522,218

The provision (benefit) for income taxes comprised the following:

(in thousands)	For the Years Ended December 31,
	2021		2020		2019
Current
Federal	$	112,811	$	72,921	$	52,194
State	19,147		17,346		11,967
International	29,288		26,301		24,239
	161,246		116,568		88,400
Deferred
Federal	(7,019)		(14,126)		4,826
State	(503)		(2,863)		269
International	4,086		(19,725)		931
	(3,436)		(36,714)		6,026
	$	157,810	$	79,854	$	94,426

The provision for income taxes differs from the amounts computed by applying the statutory federal income tax rate as follows:

	For the Years Ended December 31,
	2021		2020		2019
U.S. federal statutory rate	21.0	%	21.0	%	21.0	%
State income tax, net of federal tax benefit	2.1		2.4		2.3
Taxation on international earnings	(0.8)		(1.0)		(1.1)
Foreign derived intangible income	(1.2)		(1.1)		(1.1)
Share-based compensation from settlements	(3.6)		(5.9)		(3.6)
Research and development credit	(0.7)		(0.8)		(0.8)
Impact of Switzerland tax reform	—		(3.3)		—
Other, net	0.7		0.8		1.4
Effective tax rate	17.5	%	12.1	%	18.1	%

Our effective income tax rate was 17.5% for the year ended December 31, 2021, and 12.1% for the year ended December 31, 2020. Our effective income tax rate for the year ended December 31, 2021, was higher primarily due to the prior year one-time positive impact related to the enactment of tax reform in Switzerland due to recording a deferred tax asset related to the transitional benefits, as well as higher tax benefits in the prior year related to share-based compensation.

Our effective income tax rate was 12.1% for the year ended December 31, 2020, and 18.1% for the year ended December 31, 2019. Our effective income tax rate for the year ended December 31, 2020, was lower primarily due to the one-time positive impact related to the enactment of tax reform in Switzerland due to recording a deferred tax asset related to the transitional benefits, as well as higher tax benefits related to share-based compensation.

Income taxes paid, net of refunds received, for the periods ended December 31, 2021, 2020, and 2019, were $161.7 million, $110.7 million, and $88.0 million, respectively.

We have received a tax ruling from the Netherlands that documents our mutual understanding of how existing tax laws apply to our circumstances. Primarily as a result of this tax ruling, our net income was higher by $21.4 million, $14.2 million, and $13.7 million for the years ended December 31, 2021, 2020, and 2019, respectively. The benefits from our tax rulings are reflected within the overall benefits received from taxation on international earnings in the table above. On December 21, 2021,

the Netherlands adopted legislation eliminating the tax benefits related to this tax ruling for tax years beginning after December 31, 2021.

The components of the net deferred tax assets (liabilities) included in the accompanying consolidated balance sheets are as follows:

(in thousands)	December 31, 2021		December 31, 2020
Assets
Accrued expenses	$	48,433	$	46,830
Accounts receivable reserves	2,131		2,505
Deferred revenue	6,269		7,629
Inventory basis differences	6,553		4,272
Property-based differences	16,132		14,865
Intangible asset basis differences	46,606		51,319
Share-based compensation	10,740		10,011
Other	1,163		1,484
Net operating loss carryforwards	8,570		5,427
Tax credit carryforwards	13,483		13,385
Unrealized losses on foreign currency exchange contracts and investments	1,755		5,060
Total assets	161,835		162,787
Valuation allowance	(39,280)		(40,262)
Total assets, net of valuation allowance	122,555		122,525
Liabilities
Customer acquisition costs	(37,265)		(34,449)
Property-based differences	(42,363)		(49,547)
Intangible asset basis differences	(17,345)		(16,134)
Other	(5,662)		(2,241)
Unrealized gains on foreign currency exchange contracts and investments	(4,071)		(312)
Total liabilities	(106,706)		(102,683)
Net deferred tax assets	$	15,849	$	19,842

As of December 31, 2021, we record valuation allowances against certain deferred tax assets related to temporary differences, including intangible asset basis differences and net operating loss (“NOL”) and tax credit carryforwards, as it is more likely than not that they will not be realized or utilized within the carryforward period.

The following table summarizes the changes in valuation allowance for deferred tax assets:

(in thousands)	For the Years Ended December 31,
	2021		2020		2019
Balance at beginning of year	$	40,262	$	9,454	$	6,212
Charges to costs and expense	1,464		31,076		3,489
Write-off/cash payments	(1,182)		(34)		(226)
Foreign currency translation	(1,264)		(234)		(21)
Balance at the end of the year	$	39,280	$	40,262	$	9,454

As of December 31, 2021, we have NOLs in certain state and international jurisdictions of approximately $32.9 million available to offset future taxable income. Most of these NOLs will expire at various dates between 2022 and 2028 and the remainder have indefinite lives.

The following table summarizes the changes in unrecognized tax positions:

(in thousands)	For the Years Ended December 31,
	2021		2020		2019
Total amounts of unrecognized tax benefits, beginning of period	$	22,484	$	26,841	$	24,247
Gross increases (decreases) in unrecognized tax positions as a result of tax positions taken during a prior period	443		(1,755)		(276)
Gross increases in unrecognized tax positions as a result of tax positions taken in the current period	2,414		4,199		4,083
Decreases in unrecognized tax positions related to settlements with taxing authorities	(537)		(6,446)		—
Decreases in unrecognized tax positions as a result of a lapse of the applicable statutes of limitations	(3,015)		(355)		(1,213)
Total amounts of unrecognized tax benefits, end of period	$	21,789	$	22,484	$	26,841

Of the total unrecognized tax benefits at December 31, 2021 and 2020, $22.2 million and $21.8 million, respectively, comprise unrecognized tax positions that would, if recognized, affect our effective tax rate.

During the years ended December 31, 2021, 2020, and 2019, we recorded interest expense and penalties of $1.1 million, $1.3 million, and $1.8 million, respectively, as income tax expense in our consolidated statement of income. At December 31, 2021, 2020, and 2019, we had $3.8 million, $3.6 million, and $3.6 million, respectively, of estimated interest expense and penalties accrued in our consolidated balance sheets.

In the ordinary course of our business, our income tax filings are regularly under audit by tax authorities. While we believe we have appropriately provided for all uncertain tax positions, amounts asserted by taxing authorities could be greater or less than our accrued position. Accordingly, additional provisions on income tax matters, or reductions of previously accrued provisions, could be recorded in the future as we revise our estimates due to changing facts and circumstances or the underlying matters are settled or otherwise resolved. We are currently under tax examinations in various jurisdictions. We anticipate that these examinations will be concluded within the next two years. With few exceptions, we are no longer subject to income tax examinations in any jurisdiction in which we conduct significant taxable activities for years before 2016.