v3.22.4
Income Taxes
 3 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

Note 13. Income Taxes

The components of (loss) income before income taxes are as follows (dollars in thousands):

 

 

Three Months Ended December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Domestic

 

$

6,053

 

 

$

17,208

 

Foreign

 

 

(6,961

)

 

 

2,135

 

(Loss) income before income taxes

 

$

(908

)

 

$

19,343

 

 

The components of the provision for income taxes are as follows (dollars in thousands):

 

 

 

Three Months Ended December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Domestic

 

$

(249

)

 

$

1,437

 

Foreign

 

 

1,499

 

 

 

(1,138

)

Provision for income taxes

 

$

1,250

 

 

$

299

 

Effective income tax rate

 

 

(137.7

)%

 

 

1.5

%

The effective tax rates for the periods presented are based upon estimated income for the fiscal year and the statutory tax rates enacted in the jurisdictions in which we operate. For all periods presented, the effective tax rate differs from the 21.0% statutory U.S. tax rate due to the impact of the nondeductible stock-based compensation and our mix of jurisdictional earnings and related differences in foreign statutory tax rates.

Our effective tax rate for the three months ended December 31, 2022 was negative 137.7% compared to 1.5% for the three months ended December 31, 2021. Consequently, our provision for income taxes for the three months ended December 31, 2022 was $1.3 million, a net change of $1.0 million from a provision for income taxes of $0.3 million for the three months ended December 31, 2021. This difference was attributable to our composition of jurisdiction earnings, U.S. inclusions of foreign taxable income, and a tax benefit recorded as a result of an increase to the enacted Netherlands income tax rate in the first quarter of fiscal year 2022.

Starting with fiscal year 2023, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures in the current year. It requires us to amortize U.S. expenses over five years and foreign expenses over 15 years. The change in deductibility of the foreign research and development expenditures increases our tested income included in the Global Intangible Low Tax Income (“GILTI”). This led to an increase in our overall effective tax rate for the first quarter of fiscal year 2023.

Deferred tax assets and liabilities are measured using the statutory tax rates and laws expected to apply to taxable income in the years in which the temporary differences are expected to reverse. Valuation allowances are provided against net deferred tax assets if, based upon all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the timing of the temporary differences becoming deductible. Management considers, among other available information, scheduled reversals of deferred tax liabilities, projected future taxable income, limitations of availability of net operating loss carryforwards, and other matters in making this assessment.