Consensus Cloud Solutions, Inc.CCSI
Consensus Cloud Solutions, Inc. Income Taxes Disclosure
Income Taxes
(1) State and local income taxes in California, Colorado, Illinois, New York and New York City comprise the majority of the domestic state and local income taxes, net of federal effect category.
(1) There were no individual jurisdictions equaling 5% or more of the total income taxes paid (net of refunds) for the year ended December 31, 2025.
Income from operations before income taxes for the years ended December 31, 2025, 2024 and 2023 was as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 47,869 | $ | 46,637 | $ | 30,998 | |||||||||||
| Foreign | 66,140 | 75,608 | 72,166 | ||||||||||||||
| Income before income taxes | $ | 114,009 | $ | 122,245 | $ | 103,164 | |||||||||||
Income tax expense consists of the following (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 3,539 | $ | 19,296 | $ | 17,330 | |||||||||||
| State | 463 | 3,774 | 4,058 | ||||||||||||||
| Foreign | 7,590 | 7,261 | 1,945 | ||||||||||||||
Total current tax expense | 11,592 | 30,331 | 23,333 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 11,593 | (3,733) | (852) | ||||||||||||||
| State | 2,199 | 2,364 | (884) | ||||||||||||||
| Foreign | 4,098 | 3,848 | 4,272 | ||||||||||||||
Total deferred tax expense | 17,890 | 2,479 | 2,536 | ||||||||||||||
Income tax expense | $ | 29,482 | $ | 32,810 | $ | 25,869 | |||||||||||
The table below provides the updated requirements of ASU No. 2023-09 for 2025 (see Basis of Presentation and Summary of Significant Accounting Policies - Recent Accounting Pronouncements). 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 income tax rate | $ | 23,942 | 21.0 | % | |||||||
Domestic state and local income taxes, net of federal benefit (1) | 2,303 | 2.0 | |||||||||
Foreign: | |||||||||||
Canada | 1,476 | 1.3 | |||||||||
Ireland | |||||||||||
Foreign rate differential | (4,081) | (3.6) | |||||||||
Other | 149 | 0.1 | |||||||||
Other Foreign | 165 | 0.2 | |||||||||
Tax credits: | |||||||||||
Federal research and development credits | (1,108) | (1.0) | |||||||||
Effect of cross-border tax laws: | |||||||||||
| Net Global Intangible Low-Taxed Income | 2,531 | 2.2 | |||||||||
| Other | 271 | 0.2 | |||||||||
Non-taxable or non-deductible items: | |||||||||||
Nondeductible compensation | 1,645 | 1.4 | |||||||||
| Other | 631 | 0.6 | |||||||||
Changes in valuation allowance | 175 | 0.2 | |||||||||
Other | 86 | 0.1 | |||||||||
Changes in unrecognized tax benefits | 1,297 | 1.2 | |||||||||
Total income tax expense and effective tax rate | $ | 29,482 | 25.9 | % | |||||||
The effective tax rate for the year ended December 31, 2025, differs from the federal statutory rate primarily due to the foreign income inclusion, an increase in the net reserve for uncertain tax positions, impact of jurisdictional mix of earnings, various tax credits and certain expenses not deductible for tax purposes.
On July 4, 2025, the budget reconciliation bill H.R. 1, referred to as the One Big Beautiful Bill Act (“OBBBA”), was signed into law. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions, including modifications to capitalization of research and development expenses, limitations on deductions for interest expense and accelerated fixed asset depreciation. The OBBBA did not have a significant impact on the Company’s effective tax rate for the year ended December 31, 2025.
As previously disclosed for the years ended December 31, 2024 and 2023, a reconciliation of the statutory federal income tax rate with the Company’s effective income tax rate is as follows:
Years ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Statutory tax rate | 21.0 | % | 21.0 | % | |||||||
| State income taxes, net | 2.0 | 2.1 | |||||||||
| Foreign rate differential | (2.9) | (1.8) | |||||||||
| Foreign income inclusion | 5.1 | 7.9 | |||||||||
| Foreign tax credit | (3.3) | (5.7) | |||||||||
| Reserve for uncertain tax positions | 2.9 | 3.1 | |||||||||
| Valuation allowance | 0.8 | — | |||||||||
| Impact on deferred taxes of enacted tax law and rate changes | 0.3 | (0.1) | |||||||||
| Tax credits and incentives | (2.1) | (2.6) | |||||||||
| Executive compensation | 0.3 | 1.4 | |||||||||
| Return to provision adjustments | 0.3 | (0.9) | |||||||||
| Other | 2.4 | 0.7 | |||||||||
| Effective tax rates | 26.8 | % | 25.1 | % | |||||||
The effective tax rates for the years ended December 31, 2024 and 2023 differ from the federal statutory rate primarily due to the foreign income inclusion, an increase in the net reserve for uncertain tax positions, impact of jurisdictional mix of earnings, various tax credits and certain expenses not deductible for tax purposes.
Cash paid for income taxes, net of refunds is as follows (in thousands):
Year Ended December 31, | |||||
| 2025 | |||||
Cash paid during the period for income taxes, net of refunds | |||||
U.S. federal | $ | 4,950 | |||
U.S. state and local (1) | 1,113 | ||||
Foreign | |||||
Canada federal | 3,018 | ||||
Canada Ontario | 1,674 | ||||
Ireland | 2,728 | ||||
Other foreign (1) | 1,163 | ||||
Total cash paid during the period for income taxes | $ | 14,646 | |||
Cash paid for income taxes, net of refunds received (prior to ASU 2023-09), was $26.4 million and $16.6 million during the years ended December 31, 2024 and 2023.
The primary foreign tax jurisdictions that the Company operates in are: Canada, Ireland and Japan with statutory tax rates of 26.5%, 12.5% and 30.6%, respectively.
Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows (in thousands):
December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 328 | $ | 44 | |||||||
| Tax credit carryforwards | 2,141 | 1,716 | |||||||||
| Accrued expenses | 1,321 | 1,264 | |||||||||
| Allowance for bad debt | 765 | 1,401 | |||||||||
| Share-based compensation expense | 3,278 | 3,568 | |||||||||
| Basis difference in intangibles | 7,275 | 9,259 | |||||||||
| Basis difference in developed software | — | 2,772 | |||||||||
| Deferred revenue | 826 | 918 | |||||||||
| Operating lease | 2,975 | 3,550 | |||||||||
| State taxes | 158 | 665 | |||||||||
| Section 163(j) interest limitation | 9,505 | 7,820 | |||||||||
| Other | 2,518 | 2,769 | |||||||||
| 31,090 | 35,746 | ||||||||||
| Less: valuation allowance | (1,424) | (1,064) | |||||||||
| Total deferred tax assets | $ | 29,666 | $ | 34,682 | |||||||
| Deferred tax liabilities: | |||||||||||
| Basis difference in property and equipment | $ | (240) | $ | (132) | |||||||
Basis difference in developed software | (9,041) | — | |||||||||
| ROU asset | (1,205) | (1,617) | |||||||||
Prepaid expenses | (3,076) | (1,757) | |||||||||
| Other | (1,614) | (1,546) | |||||||||
| Total deferred tax liabilities | (15,176) | (5,052) | |||||||||
| Net deferred tax assets | $ | 14,490 | $ | 29,630 | |||||||
Reported as: | |||||||||||
Deferred income taxes (non-current assets) | $ | 21,666 | $ | 30,521 | |||||||
Deferred income taxes (non-current liabilities) | 7,176 | 891 | |||||||||
Net deferred tax assets | $ | 14,490 | $ | 29,630 | |||||||
The Company had approximately $14.5 million and $29.6 million in net deferred tax assets as of December 31, 2025 and 2024, respectively, related primarily to tax bases differences in intangibles and developed software and the Section 163(j) interest limitation. Based on the weight of available evidence, the Company assesses whether it is more likely than not that some portion or all of a deferred tax asset will not be realized. If necessary, the Company records a valuation allowance sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. As of December 31, 2025, the Company had a valuation allowance of $1.4 million against its foreign tax credit. As of December 31, 2024, the Company had a valuation allowance of $1.1 million against its foreign tax credit.
As of December 31, 2025 and 2024, the Company had an interest expense limitation carryforward of $40.8 million and $32.9 million, respectively, which carries forward indefinitely.
As of December 31, 2025 and 2024, the Company had $2.1 million and $1.7 million, respectively, of foreign tax credit carryforwards. If unused, these credits will begin to expire in 2031.
In addition, as of December 31, 2025 and 2024, the Company had state research and development tax credits of $1.9 million and $1.7 million, respectively, which can be carried forward indefinitely. As of December 31, 2025, the Company also had $1.7 million of state net operating loss carryforwards that will expire in 2044, if unused.
Federal and state laws can impose substantial restrictions on the utilization of tax credit carryforwards in the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code. The Company has determined that no significant limitation would be placed on the utilization of its tax credit carryforwards due to ownership changes.
The Company had approximately $315.8 million of undistributed earnings from foreign subsidiaries as of December 31, 2025. The Company considers earnings of $46.4 million of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of 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. If the Company decides to repatriate these foreign earnings, the Company would need to adjust the income tax provision in the period in which it is determined that the earnings will no longer be indefinitely invested outside the United States.
Certain tax payments are prepaid during the year and are included within prepaid expenses and other current assets on the Consolidated Balance Sheets. The Company’s prepaid tax payments were $5.5 million and $2.1 million at December 31, 2025 and 2024, respectively (see Note 10 - Other Balance Sheet Account Details).
Uncertain Income Tax Positions
Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company classifies gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as non-current liabilities in the Consolidated Balance Sheets.
The aggregated changes in the balance of unrecognized tax benefits, which excludes interest and penalties, for 2025, 2024 and 2023, is as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Beginning balance | $ | 11,283 | $ | 8,487 | $ | 5,742 | |||||||||||
| Increases related to tax positions during a prior year | 30 | — | — | ||||||||||||||
| Decreases related to tax positions taken during a prior year | (47) | — | — | ||||||||||||||
| Increases related to tax positions taken in the current year | 1,403 | 2,796 | 2,745 | ||||||||||||||
Decreases related to expiration of statute of limitations | (571) | — | — | ||||||||||||||
| Ending balance | $ | 12,098 | $ | 11,283 | $ | 8,487 | |||||||||||
As of December 31, 2025, the total amount of unrecognized tax benefits, excluding interest and penalties, was $12.1 million, which, if recognized, would affect the Company’s effective tax rate. As of December 31, 2024, the total amount of unrecognized tax benefits, excluding interest and penalties, was $11.3 million, which, if recognized, would affect the Company’s effective tax rate. As of December 31, 2023, the total amount of unrecognized tax benefits, excluding interest and penalties, was $8.5 million, which, if recognized, would affect the Company’s effective tax rate.
The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of December 31, 2025 and 2024, the total amount of interest and penalties accrued was $2.5 million and $2.0 million, respectively, which is classified as a liability for uncertain tax positions on the Consolidated Balance Sheets. In connection with tax matters, the Company recognized interest and penalty expense in 2025, 2024 and 2023 of $0.5 million, $0.8 million and $0.3 million, respectively.
The Company files tax returns in the U.S., Ireland, Canada, Japan, Netherlands, France and Hong Kong. As of December 31, 2025, the Company is not under audit in any jurisdiction that it operates within. The U.S. federal and most state tax returns filed for 2022 onwards, as well as certain state returns filed for 2021 onwards, are still open to examination by tax authorities. With respect to the Company’s international subsidiaries, tax returns filed for the years from 2019 onwards are still
open to examination by tax authorities.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2021 | Apr 15, 2022 | |
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.