Paychex 2016 Annual Report Download - page 75

PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of the provision for income taxes are as follows:
Year ended May 31,
In millions 2016 2015 2014
Current:
Federal .................................................. $336.4 $341.4 $314.5
State .................................................... 50.8 47.8 51.0
Total current ............................................. 387.2 389.2 365.5
Deferred:
Federal .................................................. 5.5 (5.1) (3.5)
State .................................................... 1.6 1.0 (1.4)
Total deferred ............................................ 7.1 (4.1) (4.9)
Income taxes ............................................... $394.3 $385.1 $360.6
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,
2016 2015 2014
Federal statutory tax rate ............................................ 35.0% 35.0% 35.0%
Increase/(decrease) resulting from:
State income taxes, net of federal tax benefit .......................... 3.0% 3.0% 3.3%
Section 199 — Qualified production activities ......................... (2.4)% —% —%
Tax-exempt municipal bond interest ................................. (1.4)% (1.5)% (1.5)%
Other items ..................................................... 0.1% (0.2)% (0.3)%
Effective income tax rate ........................................... 34.3% 36.3% 36.5%
During fiscal 2016, the Company engaged tax specialists to assess the qualification of its customer-facing
computer software for the federal “Qualified Production Activities Deduction” under Internal Revenue Code
Section 199, and the regulations thereunder. Based on this assessment, the Company concluded that certain of its
software offerings qualified for this tax deduction for fiscal 2016 and prior tax years that remain open to IRS
examination. The Company submitted claims to recover these tax benefits for prior tax years and will claim the
fiscal 2016 tax benefits when it files its fiscal 2016 tax return. Accordingly, the Company recognized the tax
benefits, and related tax reserves, for its qualified customer-facing activities in these years in fiscal 2016.
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 income taxes in Germany. The Company maintains a reserve for
uncertain tax positions. As of May 31, 2016 and May 31, 2015, the total reserve for uncertain tax positions,
including interest and net of federal benefits, was $54.2 million and $29.1 million, respectively, and were
included in long-term liabilities on the Consolidated Balance Sheets.
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