Accel Entertainment, Inc.ACEL
Accel Entertainment, Inc. Income Taxes Disclosure
Income Taxes
The Company recognized income tax expense of $18.4 million, $20.1 million and $20.7 million during the years ended December 31, 2024, 2023 and 2022, respectively, which consists of the following (in thousands):
| 2024 | 2023 | 2022 | |||||||||||||||
Current provision | |||||||||||||||||
Federal | $ | 14,700 | $ | 5,390 | $ | 1,558 | |||||||||||
State | 6,126 | 7,385 | 5,669 | ||||||||||||||
Total current provision | 20,826 | 12,775 | 7,227 | ||||||||||||||
Deferred provision | |||||||||||||||||
Federal | (3,244) | 10,278 | 13,743 | ||||||||||||||
State | 856 | (2,932) | (310) | ||||||||||||||
Total deferred provision | (2,388) | 7,346 | 13,433 | ||||||||||||||
Total income tax expense | $ | 18,438 | $ | 20,121 | $ | 20,660 | |||||||||||
A reconciliation of the “expected” income taxes computed by applying the federal statutory income tax rate to the total expense is as follows (in thousands):
| 2024 | 2023 | 2022 | |||||||||||||||
Computed “expected” tax expense | $ | 11,283 | $ | 13,802 | $ | 19,900 | |||||||||||
| Increase (decrease) in income taxes resulting from: | |||||||||||||||||
| State income taxes | 5,575 | 3,627 | 4,289 | ||||||||||||||
| Return-to-provision | (121) | 380 | (132) | ||||||||||||||
| Change in fair value of contingent earnout shares | 268 | 1,793 | (4,104) | ||||||||||||||
| Permanently non-deductible transaction costs | 215 | 51 | 137 | ||||||||||||||
| Officer's compensation | 221 | 129 | 177 | ||||||||||||||
| Stock-based compensation | 212 | 720 | 124 | ||||||||||||||
| Other permanent items | 589 | 641 | 343 | ||||||||||||||
State Rate Change | 119 | (724) | (121) | ||||||||||||||
Other | 77 | (298) | 47 | ||||||||||||||
Total income tax expense | $ | 18,438 | $ | 20,121 | $ | 20,660 | |||||||||||
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows as of December 31 (in thousands):
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 7,964 | $ | 8,015 | |||||||
| Interest expense limitation carryforward | 10,765 | 8,174 | |||||||||
| Stock-based compensation | 4,452 | 3,284 | |||||||||
| Lease liabilities | 2,397 | 2,589 | |||||||||
Capitalized research & experimental costs | 2,481 | 1,159 | |||||||||
| Other | 3,144 | 2,867 | |||||||||
| 31,203 | 26,088 | ||||||||||
| Deferred tax liabilities: | |||||||||||
| Property and equipment | 58,471 | 53,804 | |||||||||
| Location contracts and other intangibles | 15,282 | 9,348 | |||||||||
| Lease assets | 2,294 | 2,524 | |||||||||
| Interest rate caplets | 1,585 | 3,008 | |||||||||
| Other | 943 | 154 | |||||||||
| 78,575 | 68,838 | ||||||||||
| Total deferred tax liability, net | $ | 47,372 | $ | 42,750 | |||||||
A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The guidance on accounting for income taxes provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient taxable income can reasonably be expected in future years in order to utilize the deferred tax asset.
The Company evaluated the need to record a valuation allowance for deferred tax assets based on an assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration was given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. As a result of this evaluation, the Company concluded as of December 31, 2024, that the positive evidence outweighed the negative evidence and that it is more likely than not that its deferred tax assets will be realized.
As of December 31, 2024, and 2023, the Company did not record a liability for unrecognized tax benefits.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. As of December 31, 2024, the Company is subject to U.S federal income tax examinations for the years 2021 through 2023 and income tax examinations from state jurisdictions for the years 2021 through 2023.
The following table summarizes carryforwards of net operating losses as of December 31 (in thousands):
| 2024 | 2023 | ||||||||||||||||||||||
| Amount | Expiration | Amount | Expiration | ||||||||||||||||||||
| State net operating losses | 106,110 | 2030 | 106,690 | 2030 | |||||||||||||||||||
Significant equity restructuring often results in an Internal Revenue Code Section 382 ownership change that limits the future use of net operating loss (“NOL”) carryforwards and other tax attributes. With regard to Century Gaming, an ownership change occurred on the date the outstanding equity interests were purchased in 2022. As a result, the Company's use of the acquired
NOLs, interest expense limitation carryforward and R&D credit carryforward on an annual basis were limited. As of December 31, 2024, only the interest expense limitation is subject to limitation. The recognition and measurement of the Company's tax benefit includes estimates and judgment by the Company's management, which includes subjectivity. Changes in estimates may create volatility in the Company's tax rate in future periods based on new information about particular tax positions that may cause management to change its estimates.
The Company has no federal general business tax credit carryforward as of December 31, 2024.
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.