Allison Transmission Holdings Inc Income Taxes Disclosure
NOTE 16. INCOME TAXES
Income before income taxes included the following (dollars in millions):
|
|
Years ended December 31, |
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|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
U.S. income |
|
$ |
756 |
|
|
$ |
878 |
|
|
$ |
776 |
|
Foreign income |
|
|
48 |
|
|
|
19 |
|
|
|
51 |
|
Total |
|
$ |
804 |
|
|
$ |
897 |
|
|
$ |
827 |
|
The provision for income tax expense was estimated as follows (dollars in millions):
|
|
Years ended December 31, |
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|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current income taxes: |
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
$ |
92 |
|
|
$ |
161 |
|
|
$ |
144 |
|
U.S. state and local |
|
|
15 |
|
|
|
13 |
|
|
|
16 |
|
Foreign |
|
|
10 |
|
|
|
9 |
|
|
|
11 |
|
Total Current |
|
|
117 |
|
|
|
183 |
|
|
|
171 |
|
Deferred income tax expense (benefit), net: |
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
|
49 |
|
|
|
(13 |
) |
|
|
(15 |
) |
U.S. state and local |
|
|
12 |
|
|
|
(3 |
) |
|
|
2 |
|
Foreign |
|
|
3 |
|
|
|
(1 |
) |
|
|
(4 |
) |
Total Deferred |
|
|
64 |
|
|
|
(17 |
) |
|
|
(17 |
) |
Total income tax expense |
|
$ |
181 |
|
|
$ |
166 |
|
|
$ |
154 |
|
The following table reconciles income tax at the U.S. statutory rate to the reported consolidated income tax expense (dollars in millions):
|
|
Years ended December 31, |
|
|||||||||||||||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||||||||||||||
|
|
Amount |
|
|
Percentage |
|
|
Amount |
|
|
Percentage |
|
|
Amount |
|
|
Percentage |
|
||||||
|
$ |
169 |
|
|
|
21 |
% |
|
$ |
189 |
|
|
|
21 |
% |
|
$ |
174 |
|
|
|
21 |
% |
|
Domestic U.S. federal reconciling items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Effect of cross-border tax laws |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign derived intangible income deduction |
|
|
(13 |
) |
|
|
(2 |
)% |
|
|
(29 |
) |
|
|
(3 |
)% |
|
|
(25 |
) |
|
|
(3 |
)% |
Other |
|
|
2 |
|
|
|
— |
% |
|
|
8 |
|
|
|
1 |
% |
|
|
10 |
|
|
|
1 |
% |
Tax credits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Research and development tax credits |
|
|
(3 |
) |
|
|
— |
% |
|
|
(14 |
) |
|
|
(1 |
)% |
|
|
(14 |
) |
|
|
(2 |
)% |
Nontaxable and nondeductible items |
|
|
(1 |
) |
|
|
— |
% |
|
|
2 |
|
|
|
— |
% |
|
|
(2 |
) |
|
|
— |
% |
Changes in valuation allowances |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
|
|
(6 |
) |
|
|
— |
% |
U.S. state and local taxes, net of federal income tax effect1 |
|
|
24 |
|
|
|
3 |
% |
|
|
7 |
|
|
|
1 |
% |
|
|
15 |
|
|
|
2 |
% |
Foreign tax effects |
|
|
3 |
|
|
|
1 |
% |
|
|
3 |
|
|
|
— |
% |
|
|
2 |
|
|
|
— |
% |
Total income tax expense |
|
$ |
181 |
|
|
|
23 |
% |
|
$ |
166 |
|
|
|
19 |
% |
|
$ |
154 |
|
|
|
19 |
% |
The effective tax rate for the years ended December 31, 2025 and 2024 was 23% and 19%, respectively. The increase in the effective tax rate for the year ended December 31, 2025 was principally driven by elections made under the One Big Beautiful Bill Act ("OBBBA").
On July 4, 2025, the OBBBA was enacted into law. The OBBBA made a number of changes to U.S. federal income tax law that impacted the Company, including: allowing immediate deduction of the full cost of qualified capital investments, suspending the requirement to capitalize and amortize domestic research and development expenditures, and modifying the applicable rules for global intangible low-taxed income and foreign derived intangible income. The OBBBA impact resulted in an estimated $55 million of one-time cash tax savings during the year ending December 31, 2025.
Deferred income tax assets and liabilities as of December 31, 2025 and 2024 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the bases of such assets, liabilities and equity as measured by tax laws, as well as tax loss and tax credit carry forwards. Net deferred tax assets and liabilities are classified as non-current in the Consolidated Balance Sheets. As described above, the deferred tax assets and liabilities are measured based on the enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid.
The Company has not recognized any deferred tax liabilities associated with earnings in foreign subsidiaries, except for its subsidiary located in China, as they are intended to be permanently reinvested and used to support foreign operations or have no associated tax requirements. As of December 31, 2025, the Company has recorded a deferred tax liability of $3 million for the tax liability associated with the remittance of previously taxed income and unremitted earnings for its subsidiary located in China.
Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities included the following (dollars in millions):
|
|
December 31, |
|
|
December 31, |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Deferred revenue |
|
$ |
30 |
|
|
$ |
30 |
|
Other accrued liabilities |
|
|
25 |
|
|
|
34 |
|
Warranty accrual |
|
|
17 |
|
|
|
12 |
|
Stock-based compensation |
|
|
10 |
|
|
|
9 |
|
Tax credits |
|
|
8 |
|
|
|
8 |
|
Inventories |
|
|
8 |
|
|
|
8 |
|
Sales incentives |
|
|
8 |
|
|
|
7 |
|
Transaction costs |
|
|
6 |
|
|
|
— |
|
Intangibles |
|
|
4 |
|
|
|
— |
|
Capitalized research |
|
|
1 |
|
|
|
55 |
|
Other |
|
|
17 |
|
|
|
18 |
|
Total deferred tax assets |
|
|
134 |
|
|
|
181 |
|
Valuation allowances |
|
|
(9 |
) |
|
|
(9 |
) |
Deferred tax liabilities: |
|
|
|
|
|
|
||
Goodwill |
|
|
(425 |
) |
|
|
(414 |
) |
Trade name |
|
|
(180 |
) |
|
|
(176 |
) |
Property, plant and equipment |
|
|
(65 |
) |
|
|
(61 |
) |
Post-retirement |
|
|
(4 |
) |
|
|
(8 |
) |
Other |
|
|
(1 |
) |
|
|
(4 |
) |
Total deferred tax liabilities |
|
|
(675 |
) |
|
|
(663 |
) |
Net deferred tax liability |
|
$ |
(550 |
) |
|
$ |
(491 |
) |
Management has determined, based on an evaluation of available objective and subjective evidence, that it is more likely than not that certain federal and state deferred tax assets will not be realized; therefore, these deferred tax assets are offset with a valuation allowance of $9 million as of both December 31, 2025 and 2024.
All of the Company's tax returns, once filed, will remain subject to examination by the various taxing authorities for the duration of the applicable statute of limitations (generally three years from the earlier of the date of filing or the due date of the return).
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 14, 2024 | |
| 2022 | Feb 16, 2023 | |
| 2021 | Feb 17, 2022 | |
| 2020 | Feb 18, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 26, 2019 | |
| 2017 | Feb 15, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 19, 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.