Arista Networks, Inc.ANET

Arista Networks, Inc. Income Taxes Disclosure

10-KFiled Feb 17, 20265 min read
Income Taxes
The components of income before provision for income taxes are as follows (in millions):
Year Ended December 31,
202520242023
Domestic $3,369.6 $2,635.6 $1,977.7 
Foreign 880.1 629.5 444.3 
Income before income taxes $4,249.7 $3,265.1 $2,422.0 
The components of the provision for income taxes are as follows (in millions):
Year Ended December 31,
202520242023
Current provision for income taxes:
Federal $785.3 $751.3 $574.4 
State 142.9 114.7 106.9 
Foreign 122.1 39.8 24.2 
Total current 1,050.3 905.8 705.5 
Deferred tax expense (benefit):
Federal (294.1)(504.7)(372.3)
State (46.8)(42.8)(41.1)
Foreign 28.9 54.7 42.6 
Total deferred tax expense (benefit)(312.0)(492.8)(370.8)
Total provision for income taxes$738.3 $413.0 $334.7 
We adopted ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" on a prospective basis beginning with the year ended December 31, 2025. The following table presents required disclosure pursuant to ASU
2023-09 and reconciles the U.S. federal statutory income tax amount and rate to our total provision for income taxes amount and rate for the year ended December 31, 2025 (in millions except for percentages):
Year Ended December 31, 2025
AmountPercent
U.S. federal statutory income tax rate$892.4 21.00 %
State tax, net of federal benefit1
76.3 1.80 
Foreign Tax Effects
         Ireland
            Statutory tax rate difference between Ireland and US(45.4)(1.07)
            Other12.6 0.30 
         Other jurisdictions (1.4)(0.03)
Enactment of New Tax Laws 22.6 0.53 
Effect of Cross Border Tax Laws
          Net Controlled Foreign Corporation Tested Income(32.6)(0.77)
          Other2.3 0.05 
Tax Credits
          Research and Development Tax Credit(54.8)(1.29)
Nontaxable or Nondeductible Items
          Stock-Based Compensation(123.9)(2.91)
          Other1.2 0.02 
Changes in Unrecognized Tax Benefits(11.0)(0.26)
          Total Provision for Income Taxes$738.3 17.37 %
(1) State taxes in Georgia, Kentucky and Missouri for 2025 made up the majority (greater than 50 percent) of the tax effect in the state tax category.

The following table presents the required disclosures prior to our adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate and our effective tax rate for the years ended December 31, 2024 and December 31, 2023 (in percentages):
Year Ended December 31,
20242023
U.S. federal statutory income tax rate21.00 %21.00 %
State tax, net of federal benefit 1.75 2.13 
Taxes on foreign earnings differential (2.38)(1.96)
Tax credits (2.79)(2.74)
Stock-based compensation(4.96)(4.59)
Other, net 0.03 (0.03)
Effective tax rate12.65 %13.81 %
On July 4, 2025, the OBBB Act was signed into law in the U.S. This legislation contains a broad range of tax reform provisions affecting businesses. The full effects of the legislation on our annual effective tax rate and cash tax position are reflected in our twelve months ended December 31, 2025 period results.
Our provision for income taxes and effective tax rate increased for the year ended December 31, 2025, as compared to 2024. The increase in our income taxes was primarily associated with a decrease in tax benefits attributable to equity-based compensation. Excess tax benefits resulting from stock awards were $159.2 million, $212.3 million and $151.2 million for the years ended December 31, 2025, 2024 and 2023, respectively.
The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) are as follows (in millions) :
December 31,
20252024
Deferred tax assets:
Intangible assets$244.9 $273.9 
Reserves and accruals not currently deductible146.4 135.2 
Deferred revenue1,130.8 566.3 
Tax credits134.0 130.2 
Lease financing obligation17.7 13.7 
Capitalized research and development expenses417.0 634.5 
Stock-based compensation53.4 38.6 
Net operating losses19.7 25.9 
Other2.8 3.6 
Gross deferred tax assets 2,166.7 1,821.9 
Valuation allowance (195.8)(179.8)
Total deferred tax assets 1,970.9 1,642.1 
Deferred tax liabilities:
US tax on foreign earnings(167.5)(189.8)
Right of use asset(15.7)(11.6)
Other(14.1)(0.3)
Total deferred tax liabilities (197.3)(201.7)
Net deferred tax assets $1,773.6 $1,440.4 
The change in valuation allowance from December 31, 2024 to December 31, 2025 is substantially attributable to the uncertainty regarding the realizability of state deferred tax assets,
As of December 31, 2025, we had $210.1 million and $120.5 million of net operating loss carryforwards for federal and state income tax purposes, respectively, from acquisitions. These federal and state losses will begin to expire in 2028 and 2029, respectively. We do not have any material foreign net operating losses.
As of December 31, 2025, our state tax credit carryforwards for income tax purposes before valuation allowances were approximately $257.2 million, which can be carried over indefinitely. We have provided a valuation allowance of $195.8 million for deferred tax assets, primarily related to state carryforwards that we do not believe are more likely than not to be realized.
Utilization of the net operating losses and tax credit carryforwards may be subject to limitations due to ownership change limitations provided in the Internal Revenue Code and similar state or foreign provisions.
U.S. tax law generally requires U.S. shareholders of a controlled foreign corporation (“CFC”) to include the annual earnings of foreign subsidiaries into U.S. taxable income each year. Correspondingly, most of the undistributed earnings are deemed to be previously taxed for U.S. tax purposes and distributions of the unremitted earnings do not have any significant U.S. federal income tax impact. The determination of the future tax consequences of the remittance of these earnings is not practicable.
Income Taxes Paid
We have made tax payments and received refunds during the year ended December 31, 2025 as follows (in millions):
Year Ended December 31, 2025
U.S. Federal$808.0 
State:
Other175.2 
Foreign:
Ireland90.3 
Other22.4 
Foreign subtotal:112.7 
Total cash paid for income taxes (net of refunds)$1,095.9 
Uncertain Tax Positions
We recognize uncertain tax positions only to the extent that management believes that it is more likely than not that the position will be sustained. The reconciliation of the beginning and ending amount of gross unrecognized tax benefits as of December 31, 2025, 2024 and 2023 is as follows (in millions):
Year Ended December 31,
202520242023
Gross unrecognized tax benefits—beginning balance $181.5 $163.3 $137.4 
Increases related to tax positions taken in a prior year 8.2 0.3 4.7 
Increases related to tax positions taken during current year 20.0 52.7 39.9 
Decreases related to tax positions taken in a prior year (2.6)(8.6)(0.5)
Decreases related to lapse of statute of limitations (15.4)(26.0)(18.2)
Decreases related to settlements with taxing authorities— (0.2)— 
Gross unrecognized tax benefits—ending balance $191.7 $181.5 $163.3 
As of December 31, 2025, 2024 and 2023, the total amount of gross unrecognized tax benefits was $191.7 million, $181.5 million and $163.3 million, respectively, of which $100.7 million, $103.4 million and $90.0 million would affect our effective tax rate if recognized.
Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2025 and 2024, the net expense for interest and penalties and the recognized liability for interest and penalties were not material.
The statute of limitations for Federal and most states remains open for 2022 and forward. Some states have net operating loss and tax credit carryforwards, and therefore remain open to examination. Our foreign tax returns, where the statute of limitations have not yet lapsed, are open to audit in the respective foreign countries where the subsidiaries are located.
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Historical Timeline

Fiscal YearFiled
2025Feb 17, 2026Showing above
2024Feb 19, 2025
2023Feb 13, 2024
2022Feb 14, 2023
2021Feb 15, 2022
2020Feb 19, 2021
2019Feb 14, 2020
2018Feb 15, 2019
2017Feb 20, 2018
2016Feb 17, 2017
2015Feb 25, 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.

Other Available Disclosures

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