Paychex 2010 Annual Report Download - page 72

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The components of the provision for income taxes are as follows:
In thousands 2010 2009 2008
Year ended May 31,
Current:
Federal......................................... $230,143 $256,030 $252,623
State .......................................... 26,022 24,366 22,334
Total current.................................... 256,165 280,396 274,957
Deferred:
Federal......................................... (3,812) (1,313) 4,036
State .......................................... (44) (553) (323)
Total deferred ................................... (3,856) (1,866) 3,713
Provision for income taxes ........................... $252,309 $278,530 $278,670
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:
2010 2009 2008
Year ended May 31,
Federal statutory tax rate ........................................ 35.0% 35.0% 35.0%
Increase/(decrease) resulting from:
State income taxes, net of federal tax benefit........................ 2.3 1.9 1.7
Tax-exempt municipal bond interest .............................. (2.7) (2.6) (4.1)
Effective income tax rate ....................................... 34.6% 34.3% 32.6%
On June 1, 2007, the Company adopted authoritative accounting guidance on uncertain tax positions. This
guidance prescribes minimum recognition thresholds for evaluating uncertain income tax positions, and provides
information on derecognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The impact of the adoption mainly affected the state income tax rate, net of federal
benefit.
Upon adoption, the Company recorded a cumulative effect adjustment by increasing its reserve for uncertain
tax positions by $8.4 million, with an offsetting decrease to opening retained earnings. As of May 31, 2010 and
May 31, 2009, the total reserve for uncertain tax positions was $27.5 million and $25.7 million, respectively, and is
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:
In thousands 2010 2009 2008
Year ended May 31,
Balance as of beginning of fiscal year ..................... $35,808 $25,673 $15,911
Additions for tax positions of the current year............... 464 10,749 9,650
Adjustments for tax positions of prior years ................ 25 (167) 102
Settlements with tax authorities ......................... — (102) 241
Expiration of the statute of limitations .................... (472) (345) (231)
Balance as of end of fiscal year .......................... $35,825 $35,808 $25,673
56
PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)