INCOME TAXES
The Company’s provision for income taxes was $70,144, $55,863, and $52,196 for the years ended March 31, 2017, 2016, and 2015, respectively. This represents effective tax rates of 39.3%, 44.5%, and 39.5% for the years ended March 31, 2017, 2016, and 2015, respectively. The decrease in the Company’s tax rate during the year ended March 31, 2017 relative to the same period in 2016 was due to a significant portion of the professional services fees associated with the IPO being non-tax deductible in the year ended March 31, 2016.
The provision (benefit) for income taxes on operations for the years ended March 31, 2017, 2016, and 2015 comprises the following approximate values:
|
| | | | | | | | | | | |
| March 31, 2017 | | March 31, 2016 | | March 31, 2015 |
Current: | | | | | |
Federal | $ | 60,024 |
| | $ | 43,252 |
| | $ | 42,297 |
|
State | 12,686 |
| | 10,895 |
| | 12,664 |
|
Foreign | 3,527 |
| | 5,881 |
| | 4,593 |
|
Subtotal | 76,237 |
| | 60,028 |
| | 59,554 |
|
Deferred: | | | | | |
Federal | (7,262 | ) | | (3,867 | ) | | (6,798 | ) |
State | (962 | ) | | (93 | ) | | (751 | ) |
Foreign | 2,131 |
| | (205 | ) | | 191 |
|
Subtotal | (6,093 | ) | | (4,165 | ) | | (7,358 | ) |
Total | $ | 70,144 |
| | $ | 55,863 |
| | $ | 52,196 |
|
The provision for income taxes on operations for the years ended March 31, 2017, 2016, and 2015 is reconciled to the income taxes computed at the statutory federal income tax rate (computed by applying the federal corporate rate of 35% to consolidated operating income before provision for income taxes) as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | March 31, 2016 | | March 31, 2015 |
Federal income tax provision computed at statutory rate | $ | 62,470 |
| | 35.0 | % | | $ | 43,963 |
| | 35.0 | % | | $ | 46,226 |
| | 35.0 | % |
State and local taxes, net of federal tax effect | 8,139 |
| | 4.6 | % | | 7,108 |
| | 5.7 | % | | 6,844 |
| | 5.2 | % |
Foreign taxes | (1,741 | ) | | (1.0 | )% | | (453 | ) | | (0.4 | )% | | (1,638 | ) | | (1.3 | )% |
Nondeductible expenses | 1,422 |
| | 0.8 | % | | 1,475 |
| | 1.2 | % | | 1,285 |
| | 1.0 | % |
Nondeductible public offering-related expenses | 562 |
| | 0.3 | % | | 3,930 |
| | 3.1 | % | | — |
| | — | % |
Other | (708 | ) | | (0.4 | )% | | (160 | ) | | (0.1 | )% | | (521 | ) | | (0.4 | )% |
Total | $ | 70,144 |
| | 39.3 | % | | $ | 55,863 |
| | 44.5 | % | | $ | 52,196 |
| | 39.5 | % |
Deferred income taxes arise principally from temporary differences between book and tax recognition of income, expenses, and losses relating to financing and other transactions. The deferred income taxes on the accompanying consolidated balance sheets at March 31, 2017 and 2016 comprise the following:
|
| | | | | | | |
| March 31, 2017 | | March 31, 2016 |
Deferred tax assets: | | | |
Deferred compensation expense/accrued bonus | $ | 57,379 |
| | $ | 43,348 |
|
Allowance for doubtful accounts | 4,920 |
| | 3,195 |
|
Other, net | 251 |
| | 1,399 |
|
Total deferred tax assets | 62,550 |
| | 47,942 |
|
Deferred tax liabilities: | | |
|
Intangibles | (77,184 | ) | | (77,184 | ) |
Accounts receivable and work in process | (16,562 | ) | | (8,046 | ) |
Total deferred tax liabilities | (93,746 | ) | | (85,230 | ) |
Net deferred tax liabilities | $ | (31,196 | ) | | $ | (37,288 | ) |
A valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. The Company has determined that it is more likely than not that all deferred tax assets will be realized. Accordingly, no valuation allowance has been recognized.
As of March 31, 2017 and 2016, the Company had recorded liabilities for interest and penalties related to uncertain tax positions in the amounts of $816 and $313, net of any future tax benefit of such interest, respectively. Unrecognized tax benefits totaled $3,694 and $1,024 as of March 31, 2017 and 2016, respectively. If the income tax benefits from these tax positions are ultimately realized, such realization would affect the income tax provision and effective tax rate.
A reconciliation of the unrecognized tax benefits for the years ended March 31, 2017, 2016 and 2015 is as follows:
|
| | | | | | | | | | | |
| March 31, 2017 | | March 31, 2016 | | March 31, 2015 |
Unrecognized tax position at the beginning of the year | $ | 1,024 |
| | $ | 133 |
| | $ | 533 |
|
Increases (decreases) related to prior year tax positions | 2,670 |
| | 891 |
| | (400 | ) |
Unrecognized tax position at the end of the year | $ | 3,694 |
| | $ | 1,024 |
| | $ | 133 |
|
In the next 12 months, certain uncertain tax positions may reverse as the related statutes expire.
Prior to the IPO, the Company filed as a member of the ORIX USA consolidated federal income tax group and did so for fiscal year 2016 through the date of the IPO. Following the IPO, the Company files a consolidated federal income tax return separate from ORIX USA, as well as consolidated and separate returns in state and local jurisdictions. As of March 31, 2017, all of the federal income tax returns filed since 2014 by ORIX USA which include the Company as a subsidiary or filed by the Company are still subject to adjustment upon audit. ORIX USA is currently under federal income tax audit by the Internal Revenue Service for the year ended March 31, 2013. The Company also files combined and separate income tax returns in many states, and these returns remain open for adjustments to the Company’s federal income tax returns. Additionally, ORIX USA is currently under California audit for the years ended March 31, 2012, March 31, 2013 and March 31, 2014, as well as under Minnesota audit for the years ended March 31, 2013, March 31, 2014, March 31, 2015 and March 31, 2016.