Paychex 2014 Annual Report Download - page 77

PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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,
2014 2013 2012
Federal statutory tax rate ............................................ 35.0% 35.0% 35.0%
Increase/(decrease) resulting from:
State income taxes, net of federal tax benefit .......................... 3.3 3.0 3.3
Tax settlement .................................................. — 1.5 —
Tax-exempt municipal bond interest ................................. (1.5) (1.7) (1.8)
Other items ..................................................... (0.3) (0.2) (0.2)
Effective income tax rate ........................................... 36.5% 37.6% 36.3%
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, 2014 and May 31, 2013, the total reserve for uncertain tax positions,
including interest and net of federal benefits, was $29.8 million and $19.8 million, respectively. As of May 31,
2014 and May 31, 2013, $28.6 million and $19.7 million of the total reserves for uncertain tax positions,
including interest and net of federal benefits, were 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 2014 2013 2012
Balance as of beginning of fiscal year ............................. $26.7 $ 41.7 $41.2
Additions for tax positions of the current year ...................... 11.2 28.5 0.4
Additions for tax positions of prior years .......................... 4.2 12.2 1.3
Reductions for tax positions of prior years ......................... (1.8) (0.5) (0.1)
Settlements with tax authorities ................................. — (55.0) (0.7)
Expiration of the statute of limitations ............................ (0.3) (0.2) (0.4)
Balance as of end of fiscal year .................................. $40.0 $ 26.7 $41.7
In May 2013, the Company executed a closing agreement that resolved tax matters related to the audits by
New York State for the fiscal year ended May 31, 2004 (“fiscal 2004”) through the fiscal year ended May 31,
2011(“fiscal 2011”). As a result, the reserve for uncertain tax positions was increased by $21.2 million in May
2013. The resolution and execution of the closing agreement in May 2013 on the open tax matters for fiscal 2004
through fiscal 2011 impacted the Company’s effective income tax rate for fiscal 2013, as noted in the
reconciliation of the U.S. federal statutory rate to the Company’s effective income tax rate.
The reserve as of May 31, 2014 substantially relates to uncertain tax positions for state income tax matters.
The Company believes the reserve for uncertain tax positions, including interest and net of federal benefits, of
$29.8 million as of May 31, 2014 adequately covers open tax years and uncertain tax positions up to and
including fiscal 2014 for major taxing jurisdictions. As of May 31, 2014, $24.6 million of the $29.8 million
unrecognized tax benefits, if recognized, would impact the Company’s effective income tax rate. As of May 31,
2013, $14.6 million of the $19.8 million unrecognized tax benefits, if recognized, would have impacted the
Company’s effective income tax rate.
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