AXON ENTERPRISE, INC.AXON
AXON ENTERPRISE, INC. Income Taxes Disclosure
Income Taxes
Income before provision (benefit) for income taxes included the following components for the years ended December 31, (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | (8,227) | $ | 357,484 | $ | 134,509 | |||||||||||
| Foreign | 27,201 | 24,020 | 22,552 | ||||||||||||||
| Total | $ | 18,974 | $ | 381,504 | $ | 157,061 | |||||||||||
Significant components of the provision (benefit) for income taxes were as follows for the years ended December 31, (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (34,249) | $ | 67,944 | $ | 35,831 | |||||||||||
| State | 5,402 | 18,234 | 12,400 | ||||||||||||||
| Foreign | 5,844 | 3,388 | 5,544 | ||||||||||||||
| Total current | (23,003) | 89,566 | 53,775 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (63,999) | (63,603) | (60,674) | ||||||||||||||
| State | (15,600) | (19,678) | (9,172) | ||||||||||||||
| Foreign | (3,080) | (1,815) | (2,651) | ||||||||||||||
| Total deferred | (82,679) | (85,096) | (72,497) | ||||||||||||||
| Provision for (benefit from) income taxes | $ | (105,682) | $ | 4,470 | $ | (18,722) | |||||||||||
The table below provides the updated requirements of ASU 2023-09 for the year ended December 31, 2025. Refer to Note 1 for additional details regarding the adoption of ASU 2023-09.
The effective income tax rate for the year ended December 31, 2025 differs from the statutory federal income tax rate as follows (in thousands, except percentages):
| Year Ended December 31, 2025 | |||||||||||
| $ | % | ||||||||||
| U.S. federal statutory tax rate | $ | 3,985 | 21.0 | % | |||||||
State and local income taxes, net of federal benefit (1) | (11,735) | (61.8) | |||||||||
| Foreign tax effects | |||||||||||
| United Kingdom | |||||||||||
| Excess stock-based compensation benefit | (4,282) | (22.6) | |||||||||
| Other | (626) | (3.3) | |||||||||
| Other foreign jurisdictions | 1,960 | 10.3 | |||||||||
| Effect of cross-border tax laws | 4,180 | 22.0 | |||||||||
| Tax credits | |||||||||||
| R&D credits | (49,380) | (260.2) | |||||||||
| Valuation allowances | 540 | 2.8 | |||||||||
| Non-taxable or non-deductible items | |||||||||||
| Excess stock-based compensation benefit | (124,081) | (653.9) | |||||||||
| Executive compensation limitation | 48,781 | 257.1 | |||||||||
| Other permanent differences | 5,711 | 30.1 | |||||||||
| Unrecognized tax benefits | 19,556 | 103.1 | |||||||||
| Other adjustments | (291) | (1.6) | |||||||||
| Total tax benefit and effective tax rate | $ | (105,682) | (557.0) | % | |||||||
(1) State taxes in Arizona, Massachusetts, Illinois, New York, Florida and Pennsylvania comprise greater than 50 percent of the tax effect in this category
A reconciliation of our effective income tax rate to the federal statutory rate for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09 and as previously disclosed, is as follows (in thousands):
| 2024 | 2023 | ||||||||||
| Federal income tax at the statutory rate | $ | 80,120 | $ | 32,983 | |||||||
| Excess stock-based compensation benefit | (83,748) | (106,522) | |||||||||
| Executive compensation limitation | 51,858 | 77,350 | |||||||||
| R&D credits | (36,571) | (26,204) | |||||||||
| Nontaxable gain on investments | (19,727) | — | |||||||||
| Change in unrecognized tax benefits | 7,356 | 4,351 | |||||||||
Other permanent differences | 5,176 | 1,201 | |||||||||
| Global intangible low-taxed income | 3,081 | 1,890 | |||||||||
| Foreign derived intangible income deduction | (2,558) | (961) | |||||||||
| Foreign tax credit | (1,914) | (1,922) | |||||||||
| State income taxes, net of federal benefit | 1,713 | 3,730 | |||||||||
| Change in valuation allowance | (903) | (4,695) | |||||||||
| Tax effects of intercompany transactions | (222) | (2,033) | |||||||||
| Difference between statutory and foreign tax rates | 801 | 1,013 | |||||||||
| Other | 8 | 1,097 | |||||||||
| Provision for (benefit from) income taxes | $ | 4,470 | $ | (18,722) | |||||||
| Effective tax rate | 1.2 | % | (11.9) | % | |||||||
Cash payments of U.S. federal, state and foreign income taxes, net of refunds, were as follows (in thousands):
| Year Ended December 31, 2025 | |||||
| Federal | $ | 31,720 | |||
| State | 12,650 | ||||
| Foreign | 6,751 | ||||
| Total | $ | 51,121 | |||
Significant components of our deferred income tax assets and liabilities are as follows at December 31, 2025 and December 31, 2024 (in thousands):
| 2025 | 2024 | ||||||||||
| Deferred income tax assets: | |||||||||||
| R&D capitalization, net | $ | 162,715 | $ | 193,265 | |||||||
| Deferred revenue | 82,760 | 66,948 | |||||||||
| Stock-based compensation | 69,703 | 51,088 | |||||||||
| Net operating loss carryforward | 54,614 | 17,824 | |||||||||
| Reserves and accruals | 43,289 | 33,523 | |||||||||
| R&D tax credit carryforward | 27,105 | 19,100 | |||||||||
| Lease liabilities | 25,695 | 11,966 | |||||||||
| Other | 22,635 | 10,027 | |||||||||
| Convertible debt, net | 2,601 | 31,603 | |||||||||
| Total deferred income tax assets | 491,117 | 435,344 | |||||||||
| Valuation allowance | (32,594) | (23,054) | |||||||||
| Total deferred income tax assets, net of valuation allowance | 458,523 | 412,290 | |||||||||
| Deferred income tax liabilities: | |||||||||||
| Amortization | (40,502) | (36,185) | |||||||||
| Depreciation | (28,249) | (16,739) | |||||||||
| Right-of-use assets | (25,250) | (10,639) | |||||||||
| Other | (5,847) | (4,557) | |||||||||
| Strategic investments | (515) | (42,260) | |||||||||
| Total deferred income tax liabilities | (100,363) | (110,380) | |||||||||
| Net deferred income tax assets | 358,160 | 301,910 | |||||||||
| Deferred taxes are reflected in the consolidated balance sheet as follows: | |||||||||||
| Non-current tax assets (included in deferred tax asset, net) | 359,803 | 304,282 | |||||||||
| Non-current tax liabilities (included in other long-term liabilities) | (1,643) | (2,372) | |||||||||
| Total | $ | 358,160 | $ | 301,910 | |||||||
The following table presents the valuation allowance activity for the years ended December 31, 2025, 2024, and 2023 (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance, beginning of period | $ | 23,054 | $ | 21,600 | $ | 26,368 | |||||||||||
| Tax provision (benefit) | 8,726 | (576) | (4,262) | ||||||||||||||
| Deductions charged to tax provision / benefit | (411) | (327) | (505) | ||||||||||||||
| Additions (reversals) to other accounts | 1,225 | 2,357 | (1) | ||||||||||||||
| Balance, end of period | $ | 32,594 | $ | 23,054 | $ | 21,600 | |||||||||||
As of December 31, 2025, we have recorded a net tax benefit totaling $58.4 million for U.S. federal, state, and foreign net operating loss carryforwards (“NOLs”). As of December 31, 2025, $53.9 million of NOLs may be carried forward indefinitely while the remaining $4.5 million will begin to expire at various times from 2029 through 2055. As of December 31, 2025, we have a total of $54.6 million U.S. federal and state (net of federal benefit) R&D credit carryforwards available to offset future income taxes. A total of $24.4 million of the R&D credits may be carried forward indefinitely while the remaining $30.2 million will begin to expire at various times from 2026 through 2045.
As of December 31, 2025, we anticipate sufficient future pre-tax book income to realize a significant portion of our deferred tax assets. However, as we have various state R&D tax credits expiring unutilized each year, operating losses and unrealized investment losses for which realization is uncertain, and specific identified intangibles with an indefinite life, we have recorded a $32.6 million valuation allowance against these specific deferred tax assets as of December 31, 2025.
The net change in total valuation allowance for the years ended December 31, 2025 and 2024 was an increase of $9.5 million and $1.5 million, respectively. The valuation allowance changes are driven primarily by certain state R&D tax credits for which realization is uncertain, acquired state NOLs, and movement in deferred tax assets associated with unrealized investment losses and transaction costs incurred in connection with certain investments that are not more likely than not to be realized. Of the net change in the valuation allowance for the years ended December 31, 2025 and 2024, an increase of $8.3 million and decrease of $0.9 million, respectively, was recorded to tax expense and an increase of $1.2 million and $2.4 million, respectively, was recorded through the consolidated balance sheets.
We consider the undistributed earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the United States based on estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We project that our foreign earnings will be utilized offshore for working capital and future foreign growth and we have not made a provision for U.S. or additional foreign withholding taxes of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the tax effects of a remittance of such earnings. If we decide to repatriate the undistributed foreign earnings, we will recognize the income tax effects in the period we change our assertion on indefinite reinvestment.
We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal and state income tax purposes. We have made the determination that it is not more likely than not that the full benefit of the R&D tax credit will be sustained on examination. As such, we recorded a liability for unrecognized tax benefits of $56.2 million as of December 31, 2025. Should the unrecognized benefit of $56.2 million be recognized, our effective tax rate would be favorably impacted.
The following table presents a roll-forward of our liability for unrecognized tax benefits, exclusive of accrued interest, as of December 31, (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance, beginning of year | $ | 32,726 | $ | 25,754 | $ | 21,492 | |||||||||||
| Increase (decrease) in previous year tax positions | 237 | 501 | (215) | ||||||||||||||
| Increase in current year tax positions | 23,293 | 7,313 | 6,963 | ||||||||||||||
| Decrease due to lapse of statute of limitations | (49) | (842) | (2,486) | ||||||||||||||
| Balance, end of year | $ | 56,207 | $ | 32,726 | $ | 25,754 | |||||||||||
Federal income tax returns for 2022 through 2024 remain open to examination by the U.S. Internal Revenue Service, while state and local income tax returns for 2021 through 2024 also generally remain open to examination by state taxing authorities. The foreign tax returns for 2020 through 2024 also generally remain open to examination, although some foreign jurisdictions can audit returns up to ten years.
We have recognized expense, before federal tax impact, related to interest of $1.4 million, $1.2 million, and $0.3 million for the years ended December 31, 2025, 2024 and 2023 respectively. As of December 31, 2025 and December 31, 2024, we had accrued interest of $3.3 million and $1.8 million, respectively.
As part of the OECD global minimum tax framework, certain jurisdictions in which we operate have enacted or are in the process of implementing top-up tax provisions under Pillar Two. We have assessed the impact of these regulations on our tax position and included an immaterial adjustment in our income tax provision as of December 31, 2025. We continue to monitor legislative developments and will assess potential future impacts as additional guidance and implementation details become available.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 6, 2017 | |
| 2015 | Mar 7, 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.