8X8 INC /DE/EGHT
8X8 INC /DE/ Income Taxes Disclosure
Income Taxes
Income from continuing operations before provision for income taxes for the Company's domestic and international operations was as follows (in thousands):
| March 31, 2026 | March 31, 2025 | March 31, 2024 | |||||||||||||||
| Domestic | $ | (6,932) | $ | (25,368) | $ | (66,585) | |||||||||||
| International | 10,458 | 1,305 | 2,635 | ||||||||||||||
| Income (loss) before provision for income taxes | $ | 3,526 | $ | (24,063) | $ | (63,950) | |||||||||||
For the years ended March 31, 2026, 2025, and 2024, the Company recorded a provision for income taxes of $1.9 million, $3.1 million, and $3.6 million, respectively. The components of the consolidated provision for income taxes for fiscal 2026, 2025, and 2024 consisted of the following (in thousands):
| Current: | March 31, 2026 | March 31, 2025 | March 31, 2024 | ||||||||||||||
| Federal | $ | 129 | $ | 505 | $ | 714 | |||||||||||
| State | 290 | 1,065 | 2,384 | ||||||||||||||
| Foreign | 1,459 | 1,579 | 544 | ||||||||||||||
| Total current income tax provision | $ | 1,878 | $ | 3,149 | $ | 3,642 | |||||||||||
The Company's income from continuing operations before income taxes included $10.5 million, $1.3 million, and $2.6 million of foreign subsidiary income for the years ended March 31, 2026, 2025, and 2024, respectively. The Company is permanently reinvesting the earnings of its profitable foreign subsidiaries to facilitate expansion of overseas operations. If the Company were to remit these earnings, the tax impact would be immaterial. The Company accounts for Global Intangible Low-Taxed Income ("GILTI") as period costs when incurred.
Deferred tax assets and (liabilities) were comprised of the following (in thousands):
| March 31, 2026 | March 31, 2025 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 262,720 | $ | 268,818 | |||||||
| Research and development and other credit carryforwards | 28,303 | 27,565 | |||||||||
| Stock-based compensation | 6,046 | 6,600 | |||||||||
| Reserves and allowances | 14,767 | 14,441 | |||||||||
| Operating lease liability | 14,527 | 15,997 | |||||||||
| Capitalized IRC 174 costs | 69,907 | 74,610 | |||||||||
| Fixed assets and intangibles | 9,563 | 6,282 | |||||||||
| Gross deferred tax assets | 405,833 | 414,313 | |||||||||
| Valuation allowance | (373,937) | (368,773) | |||||||||
| Total deferred tax assets | $ | 31,896 | $ | 45,540 | |||||||
| Deferred tax liabilities: | |||||||||||
| Intangibles | (5,841) | (15,172) | |||||||||
| Deferred contract acquisition costs | (17,685) | (21,004) | |||||||||
| Operating lease, right-of-use asset | (8,484) | (9,478) | |||||||||
| Net deferred taxes | $ | (114) | $ | (114) | |||||||
The Company assesses the realizability of deferred tax assets based on the available evidence, including a history of taxable income and estimates of future taxable income. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that all or some portion of deferred tax assets will not be realized. For the year ended March 31, 2026, the Company continues to maintain a full valuation allowance against its US deferred tax assets as it considered the cumulative losses in recent periods to be substantial negative evidence. At March 31, 2026, management determined that a valuation allowance of approximately $373.9 million was needed, compared with approximately $368.8 million as of March 31, 2025.
At March 31, 2026, the Company had federal net operating loss carryforwards of approximately $994.7 million, of which $307.6 million are related to years prior to fiscal 2019 and begin to expire in 2035. The remaining $687.1 million carry forward indefinitely but can only be used to apply to 80% of the Company’s taxable income for a given tax year. As of March 31, 2026, the Company also had state net operating loss carry-forwards of $885.5 million, the majority of which expire at various dates between 2027 and 2046. In addition, at March 31, 2026, the Company had research and development credit carryforwards for federal and California tax reporting purposes of approximately $15.6 million and $25.1 million, respectively. The federal income tax credit carryforwards will expire at various dates between 2037 and 2046, while the California income tax credits will carry forward indefinitely.
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows (in thousands):
| March 31, 2026 | |||||||||||
| Amount | Percentage | ||||||||||
| Tax provision at federal statutory rate | $ | 740 | 21.0 | % | |||||||
| State and local income taxes, net of federal income tax effect1 | 139 | 3.9 | % | ||||||||
| Effect of cross border tax laws | |||||||||||
| Foreign income taxed in the United States | 1,683 | 47.7 | % | ||||||||
| Foreign-Derived Intangible Income (FDII) deduction | (249) | (7.1) | % | ||||||||
| GILTI Deduction | (37) | (1.1) | % | ||||||||
| Tax credits | |||||||||||
| Federal research and development tax credits | (769) | (21.8) | % | ||||||||
| Changes in valuation allowance | (1,185) | (33.6) | % | ||||||||
| Nontaxable or nondeductible items | |||||||||||
| Excess tax benefit on stock awards | 1,368 | 38.8 | % | ||||||||
| Other share-based payment award related items | 409 | 11.6 | % | ||||||||
| Meals and Entertainment | 190 | 5.4 | % | ||||||||
| 162(m) limitation | 176 | 5.0 | % | ||||||||
| Other | 89 | 2.5 | % | ||||||||
| Changes in unrecognized tax benefits | (42) | (1.2) | % | ||||||||
| Other | |||||||||||
| Return to provision adjustments | 104 | 2.9 | % | ||||||||
| Foreign tax effects | |||||||||||
| Singapore | |||||||||||
| Changes in valuation allowance | (284) | (8.1) | % | ||||||||
| Statutory rate difference between Singapore and United States | (58) | (1.6) | % | ||||||||
| Netherlands | |||||||||||
| Foreign exchange gains/losses | (127) | (3.6) | % | ||||||||
| Other | (49) | (1.4) | % | ||||||||
| Romania | |||||||||||
| Statutory rate difference between Romania and United States | (128) | (3.6) | % | ||||||||
| United Kingdom | |||||||||||
| Foreign exchange gains/losses | (254) | (7.2) | % | ||||||||
| Statutory rate difference between United Kingdom and United States | 164 | 4.7 | % | ||||||||
| Other | (25) | (0.7) | % | ||||||||
| Other foreign jurisdictions2 | 23 | 0.6 | % | ||||||||
| Total | $ | 1,878 | 53.1 | % | |||||||
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory US federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows (in thousands):
| Year Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Tax benefit at statutory rate | $ | (5,053) | $ | (13,429) | |||||||
| State income taxes before valuation allowance, net of federal effect | (1,404) | (2,821) | |||||||||
| Foreign tax rate differential | 1,621 | (8) | |||||||||
| Research and development credits | (454) | 714 | |||||||||
| Change in valuation allowance | 5,195 | 7,908 | |||||||||
| Compensation/option differences | 4,253 | 8,449 | |||||||||
| Non-deductible compensation | 1,625 | 2,612 | |||||||||
| Foreign-derived intangible income deduction | (602) | — | |||||||||
| Other | (2,032) | 217 | |||||||||
| Total income tax provision | $ | 3,149 | $ | 3,642 | |||||||
Cash paid for income taxes, net of refunds, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended March 31, 2026 is as follows (in thousands):
| Year Ended March 31, 2026 | |||||
| U.S. federal taxes | $ | — | |||
| U.S. state taxes | 780 | ||||
| Non U.S. taxes | 1,620 | ||||
| Total income taxes paid, net | $ | 2,400 | |||
Income taxes paid exceed 5% of total income taxes paid, net of refunds, in the following jurisdictions (in thousands):
| Year Ended March 31, 2026 | |||||
| U.S. states | |||||
| Massachusetts | $ | 330 | |||
| Illinois | 240 | ||||
| Texas | 208 | ||||
| New Jersey | (125) | ||||
| Non U.S. Taxes | |||||
| Indonesia | 202 | ||||
| Romania | 424 | ||||
| United Kingdom | 590 | ||||
Income taxes paid, net for the years ended March 31, 2025 and 2024 were $3.8 million and $6.0 million, respectively.
The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
| Year Ended March 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Balance at beginning of year | $ | 10,074 | $ | 10,811 | $ | 10,113 | |||||||||||
| Gross increases - tax positions in prior period | 69 | — | 1,457 | ||||||||||||||
| Gross increases - tax positions related to the current year | 258 | 165 | 431 | ||||||||||||||
| Gross decreases - tax positions in prior period | (236) | (903) | (337) | ||||||||||||||
| Settlements | — | — | (287) | ||||||||||||||
| Lapse of statute of limitations | — | — | (512) | ||||||||||||||
| Other | — | 1 | (54) | ||||||||||||||
| Balance at end of year | $ | 10,165 | $ | 10,074 | $ | 10,811 | |||||||||||
At March 31, 2026, the Company had unrecognized tax benefits of $10.2 million, all of which, if recognized, would favorably affect the Company's effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.
The Company's policy for recording interest and penalties associated with tax examinations is to record such items as a component of operating expense income before taxes. For the year ended March 31, 2026 and 2025, the Company recognized $0.1 million and $0.0 million, respectively, in penalties and interest related to unrecognized tax benefits.
Utilization of the Company's net operating loss and tax credit carryforwards are subject to substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration or elimination of the net operating loss and tax credit carryforwards before utilization. The Company has performed an analysis of its changes in ownership under Section 382 of the Internal Revenue Code as well as with respect to the net operating loss and tax credit carryforwards inherited as part of the Fuze acquisition. The Company currently expects the Section 382 limitation to apply with respect to the Fuze carryforwards and limit the Company’s ability to fully utilize the Fuze net operating loss carryforwards, prior to their expiration.
The Company files United States federal and state income tax returns in jurisdictions with varying statutes of limitations. Due to the Company’s net operating loss and tax credit carryforwards, fiscal years 2003 and forward generally remain subject to examination by federal and most state tax authorities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | May 22, 2026 | Showing above |
| 2025 | May 22, 2025 | |
| 2024 | May 21, 2024 | |
| 2023 | May 25, 2023 | |
| 2022 | May 27, 2022 | |
| 2021 | May 17, 2021 | |
| 2020 | May 19, 2020 | |
| 2019 | May 21, 2019 | |
| 2018 | May 30, 2018 | |
| 2017 | May 30, 2017 | |
| 2016 | May 31, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.