PC CONNECTION INC Income Taxes Disclosure
12. INCOME TAXES
There are no foreign amounts included in income before taxes on the consolidated statements of income. The provision for income taxes consisted of the following (in thousands):
Years Ended December 31, | |||||||||
| 2025 | | 2024 | | 2023 | ||||
Current: | |||||||||
Federal | $ | 19,160 | $ | 23,642 | $ | 24,648 | |||
State |
| 6,006 |
| 7,528 |
| 7,343 | |||
Total current |
| 25,166 |
| 31,170 |
| 31,991 | |||
Deferred: | |||||||||
Federal |
| 4,598 |
| (690) |
| (1,845) | |||
State |
| 242 |
| (88) |
| (303) | |||
Total deferred |
| 4,840 |
| (778) |
| (2,148) | |||
Provision for income taxes | $ | 30,006 | $ | 30,392 | $ | 29,843 | |||
A reconciliation of the Company’s provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows (dollars in thousands):
| Year Ended December 31, 2025 | |||||
| Amount | | Percent | |||
Federal income taxes, at statutory tax rate | $ | 23,883 | 21.0 | % | ||
State and local income taxes, net of federal effect1 |
| 4,812 | 4.2 | |||
Tax credits | (23) | |||||
Nondeductible expenses |
| |||||
Nondeductible compensation |
| 1,127 | 1.0 | |||
Other |
| 144 | 0.1 | |||
Other, net |
| 63 | 0.1 | |||
Income tax provision | $ | 30,006 | 26.4 | % | ||
| 1) | The state and local jurisdictions that make up the majority () of the tax effect in this category are California, New York, Massachusetts, Florida, and New York City. |
A reconciliation of the Company’s provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows (in thousands):
| Years Ended December 31, | |||||
| 2024 | | 2023 | |||
Federal income taxes, at statutory tax rate | $ | 24,672 | $ | 23,754 | ||
State income taxes, net of federal benefit |
| 5,859 |
| 5,498 | ||
Nondeductible expenses |
| 732 |
| 589 | ||
Other, net |
| (871) |
| 2 | ||
Income tax provision | $ | 30,392 | $ | 29,843 | ||
The components of the deferred taxes as of December 31, 2025 and 2024 are as follows (in thousands):
| 2025 | | 2024 | |||
Deferred tax assets: | ||||||
Allowance for credit losses | $ | 790 | $ | 843 | ||
Inventory costs capitalized for tax purposes |
| 118 |
| 99 | ||
Inventory valuation reserves |
| 338 |
| 467 | ||
Sales return reserves |
| 135 |
| 143 | ||
Deductible expenses, primarily employee-benefit related |
| 35 |
| 35 | ||
Accrued compensation |
| 1,905 |
| 1,738 | ||
Operating lease liability | 459 | 863 | ||||
Unclaimed property reserve | 784 | 668 | ||||
Other |
| 1,111 |
| 1,080 | ||
Capitalized research and development | — | 2,262 | ||||
Stock-based compensation |
| 433 |
| 352 | ||
State tax loss carryforwards |
| 843 |
| 699 | ||
State tax credit carryforwards |
| 1,579 |
| 1,159 | ||
Total gross deferred tax assets |
| 8,530 |
| 10,408 | ||
Less: Valuation allowance |
| (1,839) |
| (1,502) | ||
Net deferred tax assets |
| 6,691 |
| 8,906 | ||
Deferred tax liabilities: | ||||||
Goodwill and other intangibles |
| (14,714) |
| (14,555) | ||
Property and equipment | (7,458) | (8,215) | ||||
Capitalized research and development | (3,730) | — | ||||
Right-of-use assets | (403) | (791) | ||||
Prepaid expenses | (163) | (153) | ||||
Other |
| (128) |
| (283) | ||
Total gross deferred tax liabilities |
| (26,596) |
| (23,997) | ||
Net deferred tax liability | $ | (19,905) | $ | (15,091) | ||
Current deferred tax assets | $ | — | $ | — | ||
Noncurrent deferred tax liability |
| (19,905) |
| (15,091) | ||
Net deferred tax liability | $ | (19,905) | $ | (15,091) | ||
The Company has state net operating loss carryforwards aggregating $1,067 as of December 31, 2025 representing state tax benefits, net of federal taxes, of approximately $843. These loss carryforwards are subject to , , , twenty-year, or indefinite carryforward periods, with $29 expiring in 2026, $1 expiring in 2027, $2 expiring in 2028, $2 expiring in 2029, $86 expiring in 2030, $720 expiring beyond 2030, and $227 with no expiration. The Company has provided valuation allowances of $363 and $343 as of December 31, 2025 and 2024, respectively, against the state tax loss carryforwards, representing the portion of carryforward losses that the Company believes are not likely to be realized.
The Company also has state tax credit carryforwards aggregating $1,998 as of December 31, 2025 representing state tax benefits, net of federal taxes, of approximately $1,578. These credit carryforwards are subject to and ten-year carryforward periods, with $78 in 2029, $51 in 2030, and $1,869 expiring beyond 2030. The Company has provided a valuation allowance of $1,476 and $1,159 as of December 31, 2025 and 2024, respectively, against the state tax loss carryforwards, representing the portion of credit carryforwards that the Company believes are not likely to be realized.
The net change in the total valuation allowance reflects a $337 increase and a $287 decrease in 2025 and 2024, respectively.
The Company files one consolidated U.S. Federal income tax return that includes all of its subsidiaries as well as several consolidated, combined, and separate Company returns in many U.S. state tax jurisdictions. The tax years remain open to examination by the Internal Revenue Service and the major state taxing jurisdictions in which the Company files.
Previously, the Company recognized interest and penalties related to unrecognized income tax benefits as a component of income tax expense, and the corresponding accrual was included as a component of the Company’s liability for unrecognized income tax benefits. The Company did not recognize any unrecognized income tax benefits, interest, and penalties for the years ended December 31, 2025, 2024 or 2023.
Cash paid for income taxes, net of refunds for the year ended December 31, 2025 is as follows (in thousands):
Year Ended December 31, 2025 | |||
Federal | $ | 23,549 | |
State and local |
| 6,156 | |
Total income taxes paid, net of refunds received | $ | 29,705 | |
Cash paid for income taxes for the years ended December 31, 2024 and 2023 was $29,295 and $41,668, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Mar 7, 2024 | |
| 2022 | Mar 6, 2023 | |
| 2021 | Mar 14, 2022 | |
| 2020 | Mar 16, 2021 | |
| 2019 | Feb 6, 2020 | |
| 2018 | Feb 7, 2019 | |
| 2017 | Mar 9, 2018 | |
| 2016 | Mar 3, 2017 | |
| 2015 | Mar 3, 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.