BLACKBAUD INCBLKB
BLACKBAUD INC Income Taxes Disclosure
12. Income Taxes | ||
We file income tax returns in the U.S. for federal and various state jurisdictions as well as in foreign jurisdictions including Canada, the U.K., Australia, Ireland, Costa Rica and India. We are generally subject to U.S. federal income tax examination for calendar tax years 2022 through 2025 as well as state and foreign income tax examinations for various years depending on statutes of limitations and net operating loss and/or tax credit utilization in those jurisdictions.
The following summarizes the components of income tax expense (benefit):
| Years ended December 31, | |||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||
Current taxes: | |||||||||||
U.S. Federal | $ | (5) | $ | 36,367 | $ | 19,078 | |||||
U.S. State and local | 6,387 | 8,433 | 12,582 | ||||||||
International | 10,612 | 11,792 | 8,982 | ||||||||
Total current taxes | 16,994 | 56,592 | 40,642 | ||||||||
Deferred taxes: | |||||||||||
U.S. Federal | 1,777 | (50,078) | (18,303) | ||||||||
U.S. State and local | (2,085) | (18,472) | (5,895) | ||||||||
International | 127 | (980) | (170) | ||||||||
Total deferred taxes | (181) | (69,530) | (24,368) | ||||||||
Total income tax provision (benefit) | $ | 16,813 | $ | (12,938) | $ | 16,274 | |||||
The following summarizes the components of income (loss) before provision (benefit) for income taxes:
| Years ended December 31, | |||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||
U.S. | $ | 87,331 | $ | (366,227) | $ | (20,426) | |||||
International | 44,452 | 53,765 | 39,718 | ||||||||
Income (loss) before provision (benefit) for income taxes | $ | 131,783 | $ | (312,462) | $ | 19,292 | |||||
The following summarizes cash paid for taxes, net of refunds:
| Years ended December 31, | |||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||
| U.S. Federal | $ | 11,088 | $ | 36,327 | $ | 16,134 | |||||
U.S. State(1) | 4,696 | 14,242 | 10,463 | ||||||||
| International: | |||||||||||
| United Kingdom | 11,480 | 9,632 | 8,407 | ||||||||
| Other | 877 | 467 | 615 | ||||||||
| International total | 12,357 | 10,099 | 9,022 | ||||||||
| Total cash paid for income taxes (net of refunds) | $ | 28,141 | $ | 60,668 | $ | 35,619 | |||||
(1)No state accounted for more than 5% of total cash taxes paid.
A reconciliation between the effect of applying the U.S. federal statutory rate and the effective income tax rate used to calculate our income tax provision is as follows:
| Years ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||
U.S. Federal statutory rate | $ | 27,674 | 21.0 | % | $ | (65,434) | 21.0 | % | $ | 4,051 | 21.0 | % | ||||||||||||||
State and local income taxes, net of federal income tax effect(1) | (673) | (0.5) | (1,195) | 0.3 | 1,932 | 10.0 | ||||||||||||||||||||
Foreign tax effects | ||||||||||||||||||||||||||
United Kingdom | ||||||||||||||||||||||||||
Statutory tax rate difference between United Kingdom and United States | 1,583 | 1.2 | 1,467 | (0.5) | 953 | 4.9 | ||||||||||||||||||||
Other | (989) | (0.8) | (95) | — | (154) | (0.8) | ||||||||||||||||||||
Other foreign jurisdictions | 509 | 0.4 | 211 | (0.1) | 281 | 1.5 | ||||||||||||||||||||
Effect of changes in tax laws or rates enacted in the current period | ||||||||||||||||||||||||||
Change in U.S. Federal income tax laws(2) | — | — | — | — | — | — | ||||||||||||||||||||
Change in U.S. State income tax rate applied to deferred tax balances | 576 | 0.4 | 343 | (0.1) | 1,258 | 6.5 | ||||||||||||||||||||
Effect of cross-border tax laws | ||||||||||||||||||||||||||
GILTI inclusion (Net CFC Tested Income Inclusion starting Jan. 1, 2026) | 9,312 | 7.1 | 4,776 | (1.5) | 4,717 | 24.5 | ||||||||||||||||||||
FDII benefit (Foreign-Derived Deduction Eligible Income ("FDDEI") starting Jan. 1, 2026) | — | — | (1,931) | 0.6 | (1,796) | (9.3) | ||||||||||||||||||||
Tax Credits | ||||||||||||||||||||||||||
U.S. research and experimentation tax credits | (5,552) | (4.2) | (5,775) | 1.9 | (7,456) | (38.6) | ||||||||||||||||||||
U.S. Federal foreign tax credits | — | — | (3,459) | 1.1 | (3,083) | (16.0) | ||||||||||||||||||||
Changes in valuation allowances | (22,748) | (17.3) | 55,419 | (17.6) | 1,904 | 9.9 | ||||||||||||||||||||
Nontaxable or nondeductible items | ||||||||||||||||||||||||||
Section 162(m) limitation | 4,372 | 3.3 | 5,217 | (1.7) | 5,318 | 27.6 | ||||||||||||||||||||
Stock-based compensation | (917) | (0.7) | (3,911) | 1.3 | 2,908 | 15.1 | ||||||||||||||||||||
Nondeductible meals, entertainment and transportation | 691 | 0.5 | 740 | (0.2) | 774 | 4.0 | ||||||||||||||||||||
Nondeductible Security Incident-related fines or penalties | 2 | — | 1,418 | (0.5) | 6,300 | 32.7 | ||||||||||||||||||||
Changes in unrecognized tax benefits | (480) | (0.4) | 2,274 | (0.7) | 118 | 0.6 | ||||||||||||||||||||
Sale of subsidiary | — | — | (3,118) | 1.0 | — | — | ||||||||||||||||||||
Return to accrual adjustment | 2,781 | 2.1 | 450 | (0.1) | (1,467) | (7.6) | ||||||||||||||||||||
Other adjustments | 672 | 0.7 | (335) | (0.1) | (284) | (1.6) | ||||||||||||||||||||
Income tax provision effective rate | $ | 16,813 | 12.8 | % | $ | (12,938) | 4.1 | % | $ | 16,274 | 84.4 | % | ||||||||||||||
(1)State taxes in California, Florida, Maryland, Minnesota, Pennsylvania and Washington, D.C. made up the majority (greater than 50%) of the tax effect in this category.
(2)The rate impact of OBBBA is reflected within “Changes in valuation allowances” in our effective tax rate reconciliation given that the primary financial reporting effect of OBBBA is a reduction in DTAs, which in turn results in a corresponding reduction in the valuation allowance recorded against those DTAs, rather than a standalone recurring rate item.
The increase in our effective income tax rate for year ended December 31, 2025, when compared to the same period in 2024, was primarily attributable to normalization of several non-recurring events in 2024, in which we had recorded the valuation allowance against all of our U.S. deferred tax assets in excess of deferred tax liabilities due to the combination of our cumulative pretax loss position and net deferred tax asset position resulting from our divestiture of EVERFI.
On July 4, 2025, the OBBBA was enacted into U.S. federal income tax law. OBBBA permanently extends immediate expensing of R&D expenditures under Internal Revenue Code Section 174 and provides transition rules for previously capitalized R&D costs. Under ASC 740, these changes modify the measurement of certain DTAs, particularly those arising from capitalized Section 174 expenditures.
Additionally, in 2025, the valuation allowance decreased primarily due to the pre-tax income recorded during the current year as well as the enactment of the OBBBA, which resulted in the realizability of certain U.S. deferred tax assets. We intend to continue maintaining a valuation allowance on our U.S. net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Management continues to evaluate the impact of future phases of OBBBA that will become effective beginning in 2026, including changes to international tax provisions and interest limitation rules; however, for 2025, no further material impact beyond the valuation‑allowance‑driven effects is expected.
The significant components of our deferred tax assets and liabilities were as follows:
| December 31, | ||||||||
| (dollars in thousands) | 2025 | 2024 | ||||||
Deferred tax assets relating to: | ||||||||
Capitalized R&D and software costs | $ | 36,063 | $ | 78,809 | ||||
Federal, state and foreign tax credits | 37,751 | 31,495 | ||||||
Stock-based compensation | 17,776 | 17,176 | ||||||
Federal and state and foreign net operating loss carryforwards | 14,607 | 4,825 | ||||||
Capital loss carryforward | 7,740 | 7,282 | ||||||
Deferred revenue | 4,189 | 7,633 | ||||||
Operating leases | 2,500 | 10,751 | ||||||
Allowance for credit losses | 1,613 | 1,441 | ||||||
Intangible assets | 882 | 969 | ||||||
Accrued bonuses | 554 | 316 | ||||||
Other | 1,962 | 1,615 | ||||||
Total deferred tax assets | 125,637 | 162,312 | ||||||
Deferred tax liabilities relating to: | ||||||||
Intangible assets | (50,234) | (50,530) | ||||||
Costs of obtaining contracts | (11,946) | (13,136) | ||||||
Operating leases | (3,751) | (7,338) | ||||||
Fixed assets | (2,370) | (4,716) | ||||||
Other | (1,215) | (8,787) | ||||||
Total deferred tax liabilities | (69,516) | (84,507) | ||||||
Valuation allowance | (77,691) | (102,153) | ||||||
Net deferred tax liability | $ | (21,570) | $ | (24,348) | ||||
As of December 31, 2025, our federal, foreign and state net operating loss carryforwards for income tax purposes were approximately $53.4 million, $1.0 million and $50.3 million, respectively. Of our federal net operating loss carryforwards, $7.3 million are subject to expiration beginning in 2026 while the remainder have an unlimited carryforward period. The state net operating loss carryforwards are subject to various applicable state tax laws. If not utilized, the state net operating loss carryforwards will expire over various periods beginning in 2025. Our foreign net operating loss carryforwards have an unlimited carryforward period. Our state tax credit carryforwards for income tax purposes were approximately $32.2 million, net of federal benefit. If not utilized, the state tax credit carryforwards will begin to expire in 2025. We also have federal and state capital loss carryforwards of $30.2 million expiring in 2029. The foreign and state net operating loss carryforwards, capital loss carryforward and state credit carryforwards have a valuation allowance due to management's uncertainty regarding the future ability to use such carryforwards.
The following table illustrates the change in our deferred tax asset valuation allowance:
| Years ended December 31, (dollars in thousands) | Balance at beginning of year | Charges to expense | Balance at end of year | ||||||||
2025 | $ | 102,153 | $ | (24,462) | $ | 77,691 | |||||
2024 | 37,862 | 64,291 | 102,153 | ||||||||
2023 | 34,769 | 3,093 | 37,862 | ||||||||
The following table sets forth the change to our unrecognized tax benefit for the years ended December 31, 2025, 2024 and 2023:
| Years ended December 31, | |||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||
Balance at beginning of year | $ | 5,195 | $ | 3,240 | $ | 3,083 | |||||
Increases from prior period positions | 38 | 1,249 | 101 | ||||||||
Increases from current period positions | 721 | 706 | 762 | ||||||||
Decreases in prior year positions | (1,487) | — | (118) | ||||||||
Settlements (payments) | — | — | (160) | ||||||||
Lapse of statute of limitations | — | — | (428) | ||||||||
Balance at end of year | $ | 4,467 | $ | 5,195 | $ | 3,240 | |||||
The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective tax rate was $4.5 million at December 31, 2025. We recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. The total amount of accrued interest and penalties included in the consolidated balance sheet as of December 31, 2025 and December 31, 2024 was $1.1 million and insignificant, respectively. The total amount of interest and penalties included in the consolidated statements of comprehensive loss as an increase or decrease in income tax expense for 2025, 2024 and 2023 was insignificant.
We have taken U.S. federal and U.S. state tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits might decrease within the next twelve months. This possible decrease could result from the expiration of statutes of limitations. The reasonably possible decrease at December 31, 2025 was insignificant.
For our undistributed earnings of foreign subsidiaries, we concluded that these earnings would be permanently reinvested in the local jurisdictions and not repatriated to the United States except to the extent that said earnings are of previously taxed income. Accordingly, we have not provided for U.S. income taxes and foreign withholding taxes on those undistributed earnings of our foreign subsidiaries.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 20, 2020 | |
| 2018 | Feb 20, 2019 | |
| 2017 | Feb 20, 2018 | |
| 2016 | Feb 22, 2017 | |
| 2015 | Feb 24, 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.