Zoom Communications, Inc.ZM

Zoom Communications, Inc. Income Taxes Disclosure

10-KFiled Feb 27, 20266 min read
Income Taxes
The components of net income before the provision for income taxes were as follows:
 Year Ended January 31,
 202620252024
 (in thousands)
Domestic$2,317,100 $1,238,452 $792,495 
Foreign105,185 77,132 39,817 
Total$2,422,285 $1,315,584 $832,312 
The provision for income taxes was as follows:
 Year Ended January 31,
 202620252024
 (in thousands)
Current:
Federal$342,568 $323,625 $257,913 
State52,041 52,186 44,457 
Foreign22,493 20,086 9,159 
Total current income tax expense
417,102 395,897 311,529 
Deferred:
Federal100,104 (78,476)(88,110)
State2,416 (12,875)(20,201)
Foreign2,515 800 (8,368)
Total deferred income tax expense
105,035 (90,551)(116,679)
Total provision for income taxes
$522,137 $305,346 $194,850 
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:
 
Year Ended January 31, 2026
 (in thousands, except percentages)
Amount
Percent
US federal statutory tax rate$508,680 21.0 %
State and local income tax, net of federal income tax effect(a)
39,700 1.6 
Foreign tax effects
    Other foreign jurisdictions
2,422 0.1 
Effect of cross-border tax laws
    Foreign-derived intangible income deduction
(42,360)(1.7)
    Other effect of cross-border tax laws
(2,705)(0.1)
Nontaxable or nondeductible items
    Stock-based compensation (b)
25,274 1.0 
Tax credits
    Research and development tax credits
(34,347)(1.4)
Changes in valuation allowance5,503 0.2 
Changes in unrecognized tax benefits16,065 0.7 
Other3,905 0.2 
Effective tax rate
$522,137 21.6 %
(a) The jurisdictions that contribute to the majority of the tax effect in this category are California, Massachusetts, New Jersey, New York, and Virginia.
(b) Includes amounts related to non-deductible stock-based compensation, including non-deductible executive compensation, in addition to excess tax benefits or shortfalls from stock-based compensation. Out of total stock-based compensation, $36.8 million is related to excess tax benefits on current year vested and exercised awards.
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 for years prior to the adoption of ASU 2023-09 is as follows:
Year Ended January 31,
 20252024
(in thousands, except percentages)
Tax at federal statutory rate
$276,270 $174,785 
State taxes
56,336 37,137 
Foreign rate differential
141 2,943 
Non-deductible compensation
15,757 10,639 
Stock-based compensation
58,770 96,936 
Permanent items
10,371 4,016 
Foreign-derived intangible income deduction
(56,630)(63,571)
Research and development credits
(49,813)(39,226)
Tax uncertainties
7,478 2,674 
Change in valuation allowance
(7,765)(14,109)
Deferred rate change
(3,993)(6,803)
Other(1,576)(10,570)
         Total
$305,346 $194,850 
          Effective tax rate
23.2 %23.4 %
Deferred income taxes result from differences in the recognition of amounts for tax and financial reporting purposes, as well as operating loss and tax credit carryforwards. Significant components of our deferred income tax assets as of January 31, 2026 and 2025 are as follows:
 
As of January 31,
 20262025
 (in thousands)
Deferred tax assets:
Net operating loss carryforwards$13,433 $7,362 
Research and development credit carryforwards5,083 6,586 
Stock-based compensation29,866 59,565 
Accruals and reserves42,279 43,953 
Deferred revenue343,910 328,114 
Capitalized research expenditures635,974 514,667 
Operating lease liabilities13,885 16,551 
Other assets
10,135 2,957 
Total deferred tax assets1,094,565 979,755 
Valuation allowance(11,026)(28,990)
Total deferred tax assets net of valuation allowance1,083,539 950,765 
Deferred tax liabilities:
Property and equipment and intangible assets(34,466)(38,343)
Deferred contract acquisition costs(79,421)(76,439)
Operating right-of-use assets(12,099)(14,233)
Strategic investments
(313,698)(75,290)
Total deferred tax liabilities(439,684)(204,305)
Net deferred tax assets$643,855 $746,460 

The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available objective evidence during the year ended January 31, 2026, we maintained a valuation allowance against certain equity investment deferred tax assets for both U.S. federal and state income tax purposes and intend to maintain the applicable valuation
allowance until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance. With respect to California state income taxes, after evaluating all available positive and negative evidence, we concluded that it is more likely than not that the California net deferred tax assets, other than those related to certain equity investments, will be realized. Accordingly, during the year ended January 31, 2026, we released the valuation allowance previously recorded against the California net deferred tax assets and recognized a non-recurring income tax benefit of $24.4 million related to the reversal.
As of January 31, 2026, we had net operating loss carryforwards of approximately $30.1 million for federal income tax purposes, which can be carried forward indefinitely. We also had $35.8 million of net operating loss carryforwards for state income tax purposes, which will begin to expire in the year 2036 if unused. The federal and state net operating loss carryforwards may be subject to significant limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986 and similar provisions under state law. Such provisions limit the net operating loss carryforwards that may be used in any given year in the event of special occurrences, including significant ownership changes. We also had certain foreign net operating loss carryforwards of $19.6 million, which have an indefinite life.
As of January 31, 2026, we had research and development credit carryforwards of approximately $0.2 million for federal income tax purposes and $26.0 million for state income tax purposes. The federal research and development tax credits have a twenty-year carryover period, while the state research and development tax credits carry forward indefinitely.
We indefinitely reinvest earnings from our foreign subsidiaries; therefore, no deferred tax liability has been recognized on the basis difference created by such earnings.
A reconciliation of the beginning and ending balance of total unrecognized tax benefits is as follows:
Unrecognized Tax Benefits (in thousands)Year Ended January 31,
 202620252024
   
Balance, beginning of year$56,334 $41,772 $30,404 
Tax Positions taken in prior year:
Gross increases1,082 931 228 
Gross decreases(330)— — 
Tax Positions taken in current year:
Gross increases11,280 13,650 12,415 
Gross decreases— (19)(891)
Lapse of Statute of Limitations— — (384)
Settlements
(209)— — 
Balance, end of year$68,157 $56,334 $41,772 
As of January 31, 2026, gross unrecognized tax benefits related to uncertain tax positions were $68.2 million ($82.5 million total, including $14.3 million associated with interest and penalties). As of January 31, 2025, gross unrecognized tax benefits related to uncertain tax positions were $56.3 million ($66.0 million total, including $9.7 million associated with interest and penalties). As of January 31, 2024, gross unrecognized tax benefits related to uncertain tax positions were $41.8 million ($46.5 million total, including $4.7 million associated with interest and penalties). We recognized approximately $14.3 million, $9.7 million, and $4.7 million in potential interest and penalties associated with uncertain tax positions during fiscal years ended January 31, 2026, 2025, and 2024, respectively. To the extent taxes are not assessed with respect to uncertain tax positions, substantially all amounts accrued (including interest and penalties) will be reduced and reflected as a reduction of the overall income tax provision. Unrecognized tax benefits and associated accrued interest and penalties are included in our income tax provision.
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign jurisdictions. As of January 31, 2026, all of the years in which net operating losses or tax credits were utilized remain open to examination by the federal and state tax authorities.
The amounts of cash income taxes we paid, net of amounts refunded, were as follows:
Year Ended January 31, 2026
(in thousands)
Federal
$332,500 
State and local
67,178 
Foreign
21,927 
Income taxes, net of amounts refunded
$421,605 
The amounts of cash income taxes we paid, net of amounts refunded, during the fiscal years ended January 31, 2025 and 2024 were $395.4 million and $348.1 million, respectively.

Historical Timeline

Fiscal YearFiled
2026Feb 27, 2026Showing above
2025Feb 28, 2025
2024Mar 4, 2024
2023Mar 3, 2023
2022Mar 7, 2022
2021Mar 18, 2021
2020Mar 20, 2020

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.

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