COGENT COMMUNICATIONS HOLDINGS, INC. Income Taxes Disclosure
5. Income taxes:
The components of (loss) income before income taxes consist of the following (in thousands):
Years Ended December 31, | |||||||||
| 2025 | | 2024 | | 2023 | ||||
Domestic | $ | (244,571) | $ | (257,523) | $ | 1,217,084 | |||
Foreign | (394) | (2,126) | 2,393 | ||||||
Total (loss) income before income taxes | $ | (244,965) | $ | (259,649) | $ | 1,219,477 | |||
The income tax benefit (expense) is comprised of the following (in thousands):
Years Ended December 31, | |||||||||
| 2025 | | 2024 | | 2023 | ||||
Current: | |||||||||
Federal | $ | — | $ | — | $ | (3,638) | |||
State | (1,161) | 4,620 | (11,868) | ||||||
Foreign | (649) | (351) | (203) | ||||||
Deferred: | |||||||||
Federal | 47,887 | 54,859 | 53,393 | ||||||
State | 17,894 | (3,143) | 16,086 | ||||||
Foreign | (1,180) | (410) | 194 | ||||||
Total income tax benefit (expense) | $ | 62,791 | $ | 55,575 | $ | 53,964 | |||
Our consolidated temporary differences comprising our net deferred tax assets are as follows (in thousands):
December 31, | ||||||
| 2025 | | 2024 | |||
Deferred Tax Assets: | ||||||
Net operating loss carry-forwards | $ | 290,219 | $ | 236,346 | ||
Interest expense limitation | 86,577 | 66,386 | ||||
Accrued liabilities and other | 550 | 8,584 | ||||
Operating leases | 87,029 | 98,261 | ||||
Total gross deferred tax assets | 464,375 | 409,577 | ||||
Valuation allowance | (148,055) | (131,773) | ||||
316,320 | 277,804 | |||||
Deferred Tax Liabilities: | ||||||
Property & equipment | 298,991 | 308,254 | ||||
Intangibles | 116,087 | 113,596 | ||||
Deferred consideration – IP Transit Services Agreement | 43,261 | 63,070 | ||||
Investment in foreign subsidiaries | 107,267 | 95,974 | ||||
Right-of-use assets | 84,008 | 95,176 | ||||
Gross deferred tax liabilities | 649,614 | 676,070 | ||||
Net deferred tax liabilities | $ | 333,294 | $ | 398,266 | ||
The acquisition of Sprint was an asset acquisition for U.S. federal income tax purposes. The Company recorded a net, deferred tax liability of $475 million, that represented the difference in book basis and tax basis of the assets acquired and liabilities assumed. The Seller indemnified the Company for historical tax exposures and the estimated indemnification asset was not material.
At each balance sheet date, the Company assesses the likelihood that it will be able to realize its deferred tax assets. The Company considers all available positive and negative evidence in assessing the need for a valuation allowance. The Company maintains a full valuation allowance against certain of its deferred tax assets consisting primarily of net operating loss carryforwards related to its foreign operations in Europe, South America, Oceania and Africa.
As of December 31, 2025, the Company has combined net operating loss carry-forwards of $1.2 billion. This amount includes federal net operating loss carry-forwards in the United States of $131.7 million, net operating loss carry-forwards related to its European operations of $1.0 billion and $32.7 million related to its other international operations. The net operating loss carry-forwards related to the Company’s European operations include $883.6 million that do not expire and $156.7 million that expire between 2026 and 2034.
The Company has not provided for United States deferred income taxes or foreign withholding taxes on its undistributed earnings for certain non-US subsidiaries earnings or cumulative translation adjustments because these earnings and adjustments are intended to be permanently reinvested in operations outside the United States. It is not practical to determine the amount of the unrecognized deferred tax liability on such undistributed earnings or cumulative translation adjustments.
In the normal course of business, the Company takes positions on its tax returns that may be challenged by taxing authorities. The Company evaluates all uncertain tax positions to assess whether the position will more likely than not be sustained upon examination. If the Company determines that the tax position is not more likely than not to be sustained, the Company records a liability for the amount of the benefit that is not more likely than not to be realized when the tax position is settled. The Company did not have a material liability for uncertain tax positions at December 31, 2025, 2024 and 2023, and does not expect that its liability for uncertain tax positions will materially increase during the year ended December 31, 2026; however, actual changes in the liability for uncertain tax positions could be different than currently expected. If recognized, changes in the Company’s total unrecognized tax benefits would impact the Company’s effective income tax rate.
The Company or one of its subsidiary’s files income tax returns in the US federal jurisdiction and various state and foreign jurisdictions. The Company is subject to US federal tax and state tax examinations for years 2005 to 2025. The Company is subject to tax examinations in its foreign jurisdictions, generally for years 2005 to 2025.
The following is a reconciliation of the Federal statutory income taxes to the amounts reported in the financial statements for the years ended December 31, 2023 and 2024 (in thousands), prior to the adoption of ASU 2023-09.
December 31, | December 31, | |||||
| 2024 | | 2023 | |||
Federal income tax expense at statutory rates | $ | 54,381 | $ | (256,086) | ||
Effect of: | ||||||
State income taxes, net of federal benefit |
| 1,587 |
| 3,722 | ||
Impact of foreign operations |
| (1,602) |
| 868 | ||
Non-deductible expenses |
| (2,713) |
| (2,783) | ||
Bargain purchase gain - Cogent Fiber Business acquisition | 4,662 | 295,351 | ||||
Tax effect of TCJA from foreign earnings |
| — |
| (490) | ||
Changes in valuation allowance |
| (740) |
| 13,382 | ||
Income tax benefit (expense) | $ | 55,575 | $ | 53,964 | ||
The following is a tabular rate reconciliation disaggregated into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold as defined under ASU 2023-09 for the year ended December 31, 2025 (in thousands).
| December 31, 2025 | ||||
Benefit for income taxes at U.S. federal statutory rate | $ | 51,476 | % | 21.0 | |
Effect of: |
| | |||
| 17,114 | 7.1 | |||
Foreign tax effects |
| (2,004) | (0.5) | ||
Effect of cross-border tax laws |
| (1,565) | (1.0) | ||
Non-deductible expenses |
| (2,230) | (1.0) | ||
Total tax benefit and effective tax rate | $ | 62,791 | % | 25.6 | |
*State taxes in California, Kansas and Illinois for 2025 make up the majority (greater than 50%) of the tax effect in this category.
The following is a detail of cash paid for income taxes (net of any refunds) for the year ended December 31, 2025 by jurisdiction under ASU 2023-09 (in thousands):
| December 31, | ||
2025 | |||
U.S. Federal | $ | 1,122 | |
U.S. State and local | |||
State of California | (865) | ||
State of Texas |
| 347 | |
State of Georgia |
| (376) | |
New York City |
| (899) | |
Other jurisdictions |
| (392) | |
Foreign jurisdictions | 404 | ||
Total income taxes paid (refunded) | $ | (659) | |
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 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.