AMERICAN SUPERCONDUCTOR CORP /DE/ Income Taxes Disclosure

14. Income Taxes

Income (loss) before income taxes for the fiscal years ended March 31, 2026, 2025 and 2024 are provided in the table as follows (in thousands):

The components of income tax expense (benefit) consist of the following (in thousands):

As further described in Note 3, Summary of Significant Accounting Policies, the Company has elected to prospectively adopt the guidance in ASU 2023-09. The following table is a reconciliation of the Company's effective income tax rate to the statutory income tax rate for the fiscal year ended March 31, 2026 in accordance with the guidance in ASU 2023-09:

The following table is a reconciliation of the Company's effective income tax rate to the statutory federal income tax for the fiscal years ended March 31, 2025 and 2024 in accordance with the guidance prior to the adoption of ASU 2023-09:

For the fiscal year ended March 31, 2026, the Company paid income taxes, net of refunds received as follows:

The following is a summary of the principal components of the Company’s deferred tax assets and liabilities at March 31, 2026 and 2025 (in thousands):

The above deferred tax balances are recorded on the consolidated balance sheet as follows:

On a quarterly basis, the Company reassesses the valuation allowance on deferred income tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. During the fiscal year ended March 31, 2026, the Company recorded a net $118.4 million non-cash income tax benefit related to the release of a substantial portion of its valuation allowance against U.S. deferred tax assets. This was based on the Company's evaluation of the positive evidence, including cumulative income position over the previous three-years, revenue growth, current profitability, expectations regarding future forecasted income, and negative evidence, including uncertainty in economic and political environments from industry competition and dependence on government contracts. This release of the valuation allowance resulted in the recognition of a deferred tax asset and a corresponding increase to income tax benefit in the current period, the effect of which is an increase in reported net income. 

After consideration of all the available evidence, both positive and negative, the Company has determined that a $45.0 million valuation allowance at March 31, 2026 is necessary to reduce the U.S. deferred tax assets to the deferred tax assets to the amount that will more likely than not be realized which is a $126.7 million decrease from the $171.7 million valuation allowance as of March 31, 2025. As of March 31, 2026, the Company provides a valuation allowance against certain deferred tax assets in the U.S. and Poland. 

At March 31, 2026, the Company had aggregate net operating loss carryforwards in the U.S. for federal and state income tax purposes of approximately $624.8 million and $173.7 million, respectively, which expire in the years ending March 31, 2026 through 2042. For U.S. federal tax purpose, approximately $73.0 million of federal net operating losses have an indefinite carryforward period. Research and development and other tax credit carryforwards amounting to approximately $10.6 million and $2.0 million are available to offset federal and state income taxes, respectively, and will expire in the years ending through 2042.

As of March 31, 2026, AMSC Brazil has aggregate net operating loss carryforwards of approximately $7.9 million, which have an indefinite carryforward period. As of March 31, 2026, AMSC Poland has aggregate net operating loss carryforwards of approximately $0.4 million, which will begin to expire March 31, 2030. 

Under the Tax Cuts and Jobs Act of 2017, taxpayers are required to capitalize and amortize expenses related for research and experimental as classified under Section 174 beginning in 2022. Amortization recovery for such costs are five years for domestic expenditures and fifteen for foreign expenditures. As of  March 31, 2026, the Company had approximately $35.6 million of research and experimental expenses that had been capitalized under Section 174 with a remaining basis of $21.2 million for U.S. Federal purposes.

On July 4, 2025, the reconciliation bill, commonly referred to as the One Big Beautiful Bill ("OBBB") was signed into law, which includes a broad range of tax reform provisions that may affect a company's financial results. The OBBB allows an elective deduction for domestic research and development (R&D), a reinstatement of elective 100% first-year bonus depreciation, and a more favorable tax rate on Foreign derived deduction eligible income and income from non-U.S. subsidiaries (Net CFC Tested Income), among other provisions. The Company has performed an evaluation of the impact of the OBBB on the Company's effective tax rate and deferred tax assets in fiscal year 2025 and future periods. Based on this evaluation, the tax reform provisions do not have a material impact on the Company's consolidated financial statements and related disclosures for the fiscal year ended March 31, 2026. We will continue to assess the implications of the OBBB, and our tax provision may be further impacted as additional guidance from the U.S department of the Treasury is released. 

The total amount of undistributed foreign earnings available to be repatriated at  March 31, 2026 was $5.5 million resulting in the recording of a $0.4 million deferred tax liability for foreign withholding taxes.

Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not that the position will be sustained upon audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any changes in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. The Company did not identify any uncertain tax positions at March 31, 2026. The Company did not have any gross unrecognized tax benefits at  March 31, 2026, 2025, or 2024.

There were no reversals of uncertain tax positions in the fiscal years ended  March 31, 2026, 2025 and 2024.

The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. Any unrecognized tax benefits, if recognized, would favorably affect its effective tax rate in any future period. The Company does not expect that the amounts of unrecognized benefits will change significantly within the next twelve months.

The Company conducts business globally and, as a result, its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. Major tax jurisdictions include the U.S., Austria, and Brazil. All U.S. income tax filings for fiscal years ended March 31, 1996 through 2026 remain open and subject to examination.

All fiscal years from the fiscal year ended March 31, 2024 through 2026 remain open and subject to examination in Austria. Tax filings in Romania for the fiscal years ended March 31, 2021 through 2026 remain open and subject to examination. Tax filings in Poland for tax years 2022 through March 31, 2026 remain open and subject to examination. Tax filings in Brazil for the tax years 2020 through  March 31, 2026 remain open and subject to examination.