Churchill Downs IncCHDN
Churchill Downs Inc Income Taxes Disclosure
8. INCOME TAXES
Components of the provision for income taxes are as follows:
| Years Ended December 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Current provision: | |||||||||||||||||
| Federal | $ | 43.9 | $ | 75.2 | $ | 74.4 | |||||||||||
| State and local | 16.2 | 24.4 | 22.8 | ||||||||||||||
| Foreign | — | — | (0.1) | ||||||||||||||
| 60.1 | 99.6 | 97.1 | |||||||||||||||
| Deferred provision: | |||||||||||||||||
| Federal | 63.3 | 44.2 | 42.5 | ||||||||||||||
| State and local | 23.5 | 0.3 | 4.9 | ||||||||||||||
| 86.8 | 44.5 | 47.4 | |||||||||||||||
| Income tax provision | $ | 146.9 | $ | 144.1 | $ | 144.5 | |||||||||||
Income from operations before provision for income taxes for the year ended December 31, 2025, 2024 and 2023 was $532.4 million, $573.2 million and $561.8 million, respectively, and were all domestic in each period.
Our income tax provision is different from the amount computed by applying the federal statutory income tax rate to income from operations before taxes as follows:
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| Income from operations before provision for income taxes | $ | 532.4 | $ | 573.2 | $ | 561.8 | |||||||||||||||||||||||||||||
| Federal statutory tax on earnings before income taxes | $ | 111.8 | 21.0 | % | $ | 120.3 | 21.0 | % | $ | 117.9 | 21.0 | % | |||||||||||||||||||||||
| State income taxes, net of federal income tax benefit | 31.7 | 6.0 | % | 19.7 | 3.4 | % | 23.5 | 4.2 | % | ||||||||||||||||||||||||||
| Effect of cross border tax laws | — | — | (0.4) | (0.1) | % | (0.4) | (0.1) | % | |||||||||||||||||||||||||||
| Tax credits | (1.1) | (0.2) | % | (0.9) | (0.1) | % | (0.8) | (0.1) | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items - U.S. federal | |||||||||||||||||||||||||||||||||||
| Non-deductible officer's compensation | 6.5 | 1.2 | % | 7.0 | 1.2 | % | 5.0 | 0.9 | % | ||||||||||||||||||||||||||
| Other | (1.4) | (0.3) | % | (0.1) | — | 0.7 | 0.1 | % | |||||||||||||||||||||||||||
| Changes in unrecognized tax benefits - fed, state & foreign | (0.6) | (0.1) | % | (1.5) | (0.3) | % | (1.4) | (0.3) | % | ||||||||||||||||||||||||||
| Income tax provision | $ | 146.9 | 27.6 | % | $ | 144.1 | 25.1 | % | $ | 144.5 | 25.7 | % | |||||||||||||||||||||||
During 2025, greater than 50% of the Company’s effective tax rate related to the state income tax category was generated from tax expense in Kentucky, New Hampshire, Virginia, and Illinois. During 2024, greater than 50% of the Company’s effective tax rate related to the state income tax category was generated from tax expense in Kentucky and Virginia, and in 2023 from tax expense in Illinois, Virginia and Kentucky.
Components of our deferred tax assets and liabilities were as follows:
| December 31, | |||||||||||
| (in millions) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| § 163(j) interest expense limitation carryforward | $ | 99.1 | $ | 91.2 | |||||||
| Lease liabilities | 17.8 | 17.2 | |||||||||
| Net operating losses and credits carryforward | 8.1 | 8.6 | |||||||||
| Deferred liabilities | 10.9 | 10.1 | |||||||||
| Deferred compensation plans | 10.7 | 9.3 | |||||||||
| Deferred income | 5.7 | 3.5 | |||||||||
| Deferred tax assets | 152.3 | 139.9 | |||||||||
| Valuation allowance | (18.2) | (4.6) | |||||||||
| Net deferred tax asset | 134.1 | 135.3 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property and equipment in excess of tax basis | 255.5 | 220.8 | |||||||||
| Equity investments in excess of tax basis | 159.5 | 157.3 | |||||||||
| Intangible assets in excess of tax basis | 217.3 | 169.0 | |||||||||
| Right-of-use assets | 16.5 | 16.1 | |||||||||
| Other | 4.8 | 4.8 | |||||||||
| Deferred tax liabilities | 653.6 | 568.0 | |||||||||
| Net deferred tax liability | $ | (519.5) | $ | (432.7) | |||||||
On July 4, 2025, the United States enacted H.R. 1, a new federal tax and spending bill. Many of the tax provisions included in the bill are retroactive and are expected to have a significant favorable impact on the Company's current tax expense, primarily due to the permanent reinstatements of 100% bonus depreciation rules and a 30% of EBITDA-based interest expense deduction limitation. The expected reduction in cash paid taxes as a result of these new tax provisions will increase cash flow from operating activities.
During 2025, the Company began utilizing the deferred tax asset related to its § 163(j) interest expense limitation carryforward for federal and certain states. We have recorded a valuation allowance of $14.0 million against net deferred tax assets primarily related to the interest carryforward that we do not expect to utilize for state purposes.
As of December 31, 2025, we had U.S. state and foreign net operating losses with tax values of $7.5 million and $0.5 million, respectively. We have recorded a valuation allowance of $4.2 million due to the fact that it is unlikely that we will generate income in certain state and foreign jurisdictions which is necessary to utilize the deferred tax assets. We also had U.S. state tax credits and deductions with a tax value of $2.0 million that do not expire which we expect to fully utilize.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance as of January 1 | $ | 3.2 | $ | 4.8 | $ | 6.4 | |||||||||||
| Additions for tax positions related to the current year | 0.1 | 0.3 | 0.2 | ||||||||||||||
| Additions for tax positions of prior years | — | — | 0.3 | ||||||||||||||
| Reductions for tax positions of prior years | (0.9) | (1.9) | (2.1) | ||||||||||||||
| Balance as of December 31 | $ | 2.4 | $ | 3.2 | $ | 4.8 | |||||||||||
The Internal Revenue Service's most recent audit was completed for tax year 2012. Tax years 2022 and after are open to examination. As of December 31, 2025, we had approximately $2.4 million of total gross unrecognized tax benefits, excluding interest of $0.4 million. If the total gross unrecognized tax benefits were recognized, there would be a $2.2 million effect to the annual effective tax rate. We anticipate a decrease in our unrecognized tax positions of approximately $0.4 million during the next twelve months primarily due to expected settlements with tax authorities and the expiration of statutes of limitation.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 28, 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.