Salesforce.com 2015 Annual Report Download - page 112

Deferred Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
As of January 31,
2015 2014
Deferred tax assets:
Net operating loss carryforwards .............. $252,858 $ 259,465
Deferred stock-based expense ................ 96,753 82,840
Tax credits ............................... 152,715 107,381
Deferred rent expense ....................... 58,849 47,063
Accrued liabilities .......................... 92,506 79,235
Deferred revenue .......................... 15,664 8,522
Basis difference on investment ................ 24,637 11,999
Financing obligation ........................ 84,095 63,673
Other .................................... 20,017 17,762
Total deferred tax assets ......................... 798,094 677,940
Less valuation allowance ........................ (293,097) (180,223)
Deferred tax assets, net of valuation allowance ....... 504,997 497,717
Deferred tax liabilities:
Deferred commissions ...................... (107,197) (87,625)
Purchased intangibles ....................... (213,920) (259,409)
Unrealized gains on investments .............. (1,793) (5,232)
Depreciation and amortization ................ (171,908) (144,752)
Other .................................... (3,157) (3,599)
Total deferred tax liabilities ...................... (497,975) (500,617)
Net deferred tax assets .......................... $ 7,022 $ (2,900)
At January 31, 2015, for federal income tax purposes, the Company had net operating loss carryforwards of
approximately $2.1 billion, which expire in fiscal 2021 through fiscal 2035, federal research and development tax
credits of approximately $110.6 million, which expire in fiscal 2020 through fiscal 2035, foreign tax credits of
approximately $21.5 million, which expire in fiscal 2019 through fiscal 2025, and minimum tax credits of $0.7
million, which have no expiration date. For California income tax purposes, the Company had net operating loss
carryforwards of approximately $843.3 million which expire beginning in fiscal 2016 through fiscal 2035,
California research and development tax credits of approximately $92.0 million, which do not expire, and $9.5
million of enterprise zone tax credits, which expire in fiscal 2025. For other states income tax purposes, the
Company had net operating loss carryforwards of approximately $934.7 million which expire beginning in fiscal
2016 through fiscal 2035 and tax credits of approximately $9.5 million, which expire beginning in fiscal 2021
through fiscal 2025. Utilization of the Company’s net operating loss carryforwards may be subject to substantial
annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar
state provisions. Such an annual limitation could result in the expiration of the net operating loss and tax credit
carryforwards before utilization.
The Company regularly assesses the need for a valuation allowance against its deferred tax assets by
considering both positive and negative evidence related to the likelihood of the realization of its deferred taxes to
determine if it is more-likely-than-not that some or all of its deferred tax assets will be realized. The Company
recorded a valuation allowance as it considered its cumulative loss in recent years as a significant piece of
negative evidence. During fiscal 2015, the valuation allowance increased by $112.9 million, primarily due to
research tax credits and other US deferred tax assets. The Company will continue to assess the realizability of the
deferred tax assets in each of the applicable jurisdictions going forward and adjust the valuation allowance
accordingly.
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