Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.2
Income Taxes
 12 Months Ended
May 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

Note K — Income Taxes

 

The components of deferred tax assets and liabilities are as follows:

 

 

May 31,

 

In millions

2023

 

2022

 

Deferred tax assets:

 

 

 

 

 

 

Compensation and employee benefit liabilities

$

 

52.4

 

$

 

56.8

 

Other current liabilities

 

 

17.3

 

 

 

21.3

 

Tax credit carry forward

 

 

0.2

 

 

 

0.2

 

Stock-based compensation

 

 

14.8

 

 

 

12.9

 

Unrealized losses on available-for-sale securities

 

 

43.4

 

 

 

33.6

 

Capitalization of research and development

 

 

54.1

 

 

 

—

 

Leases

 

 

15.9

 

 

 

20.5

 

Net operating loss (“NOL”) carry forwards

 

 

5.1

 

 

 

5.6

 

Tax benefit of uncertain tax positions

 

 

13.6

 

 

 

9.9

 

Gross deferred tax assets

 

 

216.8

 

 

 

160.8

 

Deferred tax liabilities:

 

 

 

 

 

 

Deferred contract costs

 

 

151.3

 

 

 

141.9

 

Capitalized software

 

 

56.5

 

 

 

50.8

 

Depreciation

 

 

2.4

 

 

 

8.1

 

Goodwill and intangible assets

 

 

99.1

 

 

 

103.5

 

Operating lease right-of-use assets

 

 

13.7

 

 

 

17.7

 

Other

 

 

5.7

 

 

 

4.3

 

Gross deferred tax liabilities

 

 

328.7

 

 

 

326.3

 

Net deferred tax liability

$

 

(111.9

)

$

 

(165.5

)

 

 

The deferred tax asset related to NOL carry forwards is comprised of $0.3 million of federal NOL carry forwards, $4.4 million of state NOL carry forwards, and $0.4 million of foreign NOL carry forwards. The federal NOL carry forwards were acquired through various acquisitions and expire between the fiscal years ending May 31, 2028 and May 31, 2030. The state NOL carry forwards expire between the fiscal years ending May 31, 2024 through May 31, 2042.

 

The components of the provision for income taxes are as follows:

 

 

Year ended May 31,

 

In millions

2023

 

2022

 

2021

 

Current:

 

 

 

 

 

 

 

 

 

Federal

$

 

418.1

 

$

 

326.0

 

$

 

271.5

 

State

 

 

117.1

 

 

 

104.5

 

 

 

85.9

 

Non-U.S.

 

 

(0.3

)

 

 

(1.0

)

 

 

0.3

 

Total current

 

 

534.9

 

 

 

429.5

 

 

 

357.7

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

(34.2

)

 

 

0.9

 

 

 

(12.9

)

State

 

 

(7.4

)

 

 

0.9

 

 

 

(7.6

)

Non-U.S.

 

 

(2.4

)

 

 

0.5

 

 

 

(0.5

)

Total deferred

 

 

(44.0

)

 

 

2.3

 

 

 

(21.0

)

Income taxes

$

 

490.9

 

$

 

431.8

 

$

 

336.7

 

 

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:

 

 

 

Year ended May 31,

 

 

2023

 

2022

 

2021

Federal statutory tax rate

 

 

21.0

 

%

 

 

21.0

 

%

 

 

21.0

 

%

Increase/(decrease) resulting from:

 

 

 

 

 

 

 

 

 

 

 

 

State income taxes, net of federal tax benefit

 

 

4.2

 

%

 

 

4.6

 

%

 

 

4.3

 

%

Tax-exempt municipal bond interest

 

 

(0.2

)

%

 

 

(0.2

)

%

 

 

(0.3

)

%

Stock option windfall benefit

 

 

(0.4

)

%

 

 

(0.9

)

%

 

 

(1.2

)

%

Tax credits

 

 

(0.7

)

%

 

 

(1.1

)

%

 

 

(0.6

)

%

Other items

 

 

0.1

 

%

 

 

0.3

 

%

 

 

0.3

 

%

Effective income tax rate

 

 

24.0

 

%

 

 

23.7

 

%

 

 

23.5

 

%

 

The effective income tax rates in all periods were impacted by recognition of net discrete tax benefits related to employee stock-based compensation payments.

 

Uncertain income tax positions: The Company is subject to U.S. federal income tax, numerous local and state tax jurisdictions within the U.S., and taxes in Europe. The Company maintains a reserve for uncertain tax positions. As of May 31, 2023 and 2022, the total reserve for uncertain tax positions, including interest and net of federal benefits, was $69.4 million and $48.2 million, respectively, and was included in long-term liabilities on the Consolidated Balance Sheets.

 

A reconciliation of the beginning and ending amounts of the Company’s gross unrecognized tax benefits, not including interest or other potential offsetting effects, is as follows:

 

 

 

Year ended May 31,

 

In millions

 

2023

 

 

2022

 

 

2021

 

Balance as of beginning of fiscal year

 

$

 

50.2

 

 

$

 

22.4

 

 

$

 

26.2

 

Additions for tax positions of the current year

 

 

 

20.6

 

 

 

 

11.1

 

 

 

 

5.5

 

Additions for tax positions of prior years

 

 

 

4.6

 

 

 

 

20.6

 

 

 

 

9.2

 

Reductions for tax positions of prior years

 

 

 

(2.1

)

 

 

 

(1.8

)

 

 

 

—

 

Settlements with tax authorities

 

 

 

(0.4

)

 

 

 

(0.4

)

 

 

 

(15.2

)

Expiration of the statute of limitations

 

 

 

(0.9

)

 

 

 

(1.7

)

 

 

 

(3.3

)

Balance as of end of fiscal year

 

$

 

72.0

 

 

$

 

50.2

 

 

$

 

22.4

 

 

 

The reserve as of May 31, 2023 substantially relates to the Company’s uncertain tax positions for certain U.S. federal and state income tax matters. The Company believes the reserve for uncertain tax positions, including interest and net of federal benefits, of $69.4 million as of May 31, 2023 adequately covers open tax years and uncertain tax positions up to and including fiscal 2023 for major taxing jurisdictions. As of May 31, 2023 and 2022, the entire $69.4 million and $48.2 million, respectively, of unrecognized tax benefits, including interest and net of federal benefit, if recognized, would impact the Company’s effective income tax rate.

 

The Company has concluded all U.S. federal income tax matters through fiscal 2017. Fiscal years 2018 and 2020 are currently under audit by the IRS. With limited exception, state income tax audits by taxing authorities are closed through fiscal 2014, primarily due to expiration of the statute of limitations.

 

The Company continues to follow its policy of recognizing interest and penalties accrued on tax positions as a component of income taxes on the Consolidated Statements of Income and Comprehensive Income. The amount of accrued interest and penalties associated with the Company’s tax positions is immaterial to the Consolidated Balance Sheets. The amount of interest and penalties recognized for fiscal years 2023, 2022, and 2021 was immaterial to the Company’s results of operations.