Maximus, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income taxes

Income taxes

12 Months Ended

Sep. 30, 2015

15. Income taxes

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

	Year ended September 30,
	2015		2014		2013
Income before income taxes:
United States	$	232,359	$	180,820	$	139,716
Foreign		27,460		46,549		49,306

Income before income taxes	$	259,819	$	227,369	$	189,022

	Year ended September 30,
	2015			2014		2013
Current provision:
Federal	$	74,050		$	55,656	$	43,199
State and local		15,332			12,003		11,257
Foreign		9,581			11,416		14,821

Total current provision		98,963			79,075		69,277

Deferred tax expense (benefit):
Federal		2,233			1,750		2,741
State and local		403			181		851
Foreign		(1,829	)		967		(1,196	)

Total deferred tax expense (benefit)		807			2,898		2,396

Provision for income taxes	$	99,770		$	81,973	$	71,673

The provision for income taxes differs from that which would have resulted from the use of the federal statutory income tax rate as follows (in thousands):

	Year ended September 30,
	2015			2014			2013
Federal income tax provision at statutory rate of 35%	$	90,937		$	79,579		$	66,158
State income taxes, net of federal benefit		9,847			7,920			8,151
Foreign taxation		(2,208	)		(3,909	)		(3,715	)
Permanent items		1,602			1,286			708
Tax credits		(961	)		(1,623	)		(217	)
Valuation allowances on net operating loss carryforwards		—			(962	)		—
Other		553			(318	)		588

Income tax expense	$	99,770		$	81,973		$	71,673

The significant items comprising our deferred tax assets and liabilities as of September 30, 2015 and 2014 are as follows (in thousands):

	As of September 30,
	2015		2014
Deferred tax assets—current:
Deferred revenue	$	12,320	$	19,815
Costs deductible in future periods		15,467		14,944
Net operating loss carryforwards		777		207
Other		26		—

Total deferred tax assets—current		28,590		34,966

Deferred tax liabilities—current:
Accounts receivable—unbilled		9,598		6,858

Net deferred tax asset—current	$	18,992	$	28,108


Deferred tax assets—non-current:
Net operating loss carryforwards	$	139	$	2,355
Valuation allowance on net operating loss carryforwards		—		—

Net operating loss carryforwards net of valuation reserve		139		2,355
Deferred revenue		9,127		7,089
Stock compensation		4,600		4,100
Costs deductible in future periods		10,429		1,662
Other		441		7,828

Total deferred tax assets—non-current		24,736		23,034

Deferred tax liabilities—non-current
Amortization of goodwill and intangible assets		22,061		20,261
Capitalized software		9,781		12,057
Property and equipment		6,353		10,045
Deferred contract costs		—		1,762
Employee benefit costs		759		—
Other		941		292

Total deferred tax liability—non-current	$	39,895	$	44,417

Net deferred tax liability—non-current	$	15,159	$	21,383

At September 30, 2015, our foreign subsidiaries held approximately $190 million of cumulative earnings. We consider undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the United States and, accordingly, no U.S. deferred taxes have been recorded with respect to such earnings in accordance with the relevant accounting guidance for income taxes. Should the earnings be remitted as dividends, we may be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings given the various tax planning alternatives we could employ should we decide to repatriate these earnings in a tax-efficient manner.

We had $2.1 million and $4.5 million of net operating loss carryforwards in the U.S. at September 30, 2015 and 2014, respectively. These balances resulted in deferred tax assets of $0.7 million and $2.4 million, respectively, and relate exclusively to the losses held by PSI prior to the acquisition in 2012. Although our ability to use these loss carryforwards will be restricted to an annual allowance, we have sufficient profits and time within the jurisdictions where losses have arisen to ensure that these losses will be utilized in full through fiscal year 2017. Accordingly, no reserve has been recorded against these balances. These net operating loss carryforwards expire between 2027 and 2031.

We had $0.4 million and $0.8 million of net operating loss carryforwards in Canada at September 30, 2015 and 2014, respectively, resulting in deferred tax assets of $0.1 million and $0.2 million. These net operating loss carryforwards expire through 2027 to 2031.

Cash paid for income taxes during the years ended September 30, 2015, 2014, and 2013 was $81.3 million, $79.4 million and $58.2 million, respectively.

The provision for income taxes includes all provision to return adjustments included in the year recognized in the financial statements.

We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is "more-likely-than-not" that the position will be sustained upon examination. Our net unrecognized tax benefits totaled $1.0 million and $1.1 million at September 30, 2015 and 2014, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect our annual effective income tax rate was $1.0 million at September 30, 2015.

We report interest and penalties as a component of income tax expense. In the fiscal years ending September 30, 2015, 2014 and 2013, we recognized interest expense relating to unrecognized tax benefits of less than $0.1 million in each year. The net liability balance at September 30, 2015 and 2014 includes approximately $0.5 million of interest and penalties.

We recognize and present uncertain tax positions on a gross basis (i.e., without regard to likely offsets for deferred tax assets, deductions and/or credits that would result from payment of uncertain tax amounts). The reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows (in thousands):

	Year Ended September 30,
	2015			2014		2013
Balance at beginning of year	$	812		$	812	$	1,059
Lapse of statute of limitation		(200	)		—		(230	)
Reductions for tax positions of prior years		(83	)		—		(17	)

Balance at end of year	$	529		$	812	$	812

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are no longer subject to federal income tax examinations for years before 2012 and to state and local income tax examinations by tax authorities for years before 2010. In international jurisdictions, similar rules apply to filed income tax returns, although the tax examination limitations and requirements may vary. We are no longer subject to audit by tax authorities for foreign jurisdictions for years prior to 2010.