DROPBOX, INC.DBX
DROPBOX, INC. Income Taxes Disclosure
Income Taxes
For the years ended December 31, 2025, 2024, and 2023, the Company’s income from continuing operations before provision for income taxes was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 352.9 | $ | 280.4 | $ | 385.8 | |||||||||||
| Foreign | 264.7 | 229.4 | 168.6 | ||||||||||||||
| Income before income taxes | $ | 617.6 | $ | 509.8 | $ | 554.4 | |||||||||||
The components of the provision for income taxes in the years ended December 31, 2025, 2024, and 2023, were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (0.2) | $ | (21.7) | $ | (37.6) | |||||||||||
| State | (9.6) | (11.2) | (14.6) | ||||||||||||||
| Foreign | (47.8) | (30.9) | (10.7) | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (51.2) | 2.6 | (23.0) | ||||||||||||||
| State | (1.6) | 4.5 | 2.7 | ||||||||||||||
| Foreign | 1.2 | (0.8) | (17.6) | ||||||||||||||
| Provision for income taxes | $ | (109.2) | $ | (57.5) | $ | (100.8) | |||||||||||
On July 4, 2025, the OBBBA was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the TCJA, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The legislation reduced U.S. cash tax payments in 2025, but increased tax expense, primarily due to the reinstatement of immediate expensing for U.S. research expenditures, which decreased GILTI, eliminated the foreign-derived intangible income ("FDII") benefit, and lowered taxable income which limited the availability of certain credits.
A reconciliation of income taxes at the statutory federal income tax rate to the provision for income taxes included in the accompanying consolidated statements of operations is as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| U.S. federal statutory tax rate | $ | (129.7) | 21.0 | % | $ | (107.1) | 21.0 | % | $ | (116.4) | 21.0 | % | |||||||||||||||||||||||
State and local income taxes, net of federal benefit (1) | (5.5) | 0.9 | % | (4.2) | 0.8 | % | (8.5) | 1.5 | % | ||||||||||||||||||||||||||
| Foreign tax effects | |||||||||||||||||||||||||||||||||||
| Ireland | |||||||||||||||||||||||||||||||||||
| Statutory tax rate difference between Ireland and the U.S. | 22.3 | (3.6) | % | 18.8 | (4.0) | % | 12.9 | (2.6) | % | ||||||||||||||||||||||||||
| Other | (4.9) | 0.7 | % | (5.8) | 1.5 | % | (2.4) | 0.7 | % | ||||||||||||||||||||||||||
| Other foreign jurisdictions | (3.8) | 0.6 | % | (4.0) | 0.8 | % | (0.2) | — | % | ||||||||||||||||||||||||||
| Effect of cross-border tax laws | |||||||||||||||||||||||||||||||||||
| Global intangible low-taxed income | (7.8) | 1.3 | % | (14.0) | 2.8 | % | (38.0) | 6.9 | % | ||||||||||||||||||||||||||
| Foreign-derived intangible income | — | — | % | 5.4 | (1.1) | % | 6.0 | (1.1) | % | ||||||||||||||||||||||||||
| Other | 0.3 | (0.1) | % | 0.6 | (0.1) | % | (0.1) | — | % | ||||||||||||||||||||||||||
| Research and development tax credits | 19.4 | (3.1) | % | 40.7 | (8.0) | % | 50.1 | (9.0) | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | 13.2 | (2.1) | % | 7.6 | (1.5) | % | 2.4 | (0.4) | % | ||||||||||||||||||||||||||
| Non-deductible compensation | (4.1) | 0.7 | % | (5.9) | 1.2 | % | (7.1) | 1.3 | % | ||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | (8.6) | 1.4 | % | 7.3 | (1.4) | % | (1.7) | 0.3 | % | ||||||||||||||||||||||||||
| Other adjustments | — | — | % | 3.1 | (0.7) | % | 2.2 | (0.4) | % | ||||||||||||||||||||||||||
| Provision for income taxes | $ | (109.2) | 17.7 | % | $ | (57.5) | 11.3 | % | $ | (100.8) | 18.2 | % | |||||||||||||||||||||||
(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include Georgia, Illinois, New Jersey, New York, Tennessee, Wisconsin for 2025, Florida, Georgia, Illinois, Maryland, New Jersey, New York, New York City, Virginia for 2024, and Florida, Georgia, Massachusetts, New York, New York City, Pennsylvania, Virginia for 2023.
Cash paid for income taxes (net of refunds) consisted of the following:
| As of December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | 6.2 | $ | 20.4 | $ | 39.9 | |||||||||||
| State | 4.8 | 10.4 | 18.9 | ||||||||||||||
| Foreign | |||||||||||||||||
| Ireland | 43.7 | 28.3 | 8.0 | ||||||||||||||
| Other Foreign | 2.2 | 1.9 | 1.4 | ||||||||||||||
| Cash paid for income taxes (net of refunds) | $ | 56.9 | $ | 61.0 | $ | 68.2 | |||||||||||
The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2025 and 2024 were as follows:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 22.0 | $ | 20.7 | |||||||
| Research credit carryforwards | 220.1 | 194.9 | |||||||||
| Stock-based compensation | 25.1 | 25.7 | |||||||||
| Accruals and reserves | 27.6 | 25.9 | |||||||||
| Lease liability | 81.0 | 60.4 | |||||||||
| Convertible senior notes | 15.5 | 26.5 | |||||||||
| Capitalized research expenditures | 216.4 | 289.3 | |||||||||
| Other | 6.6 | 0.6 | |||||||||
| Gross deferred tax assets | 614.3 | 644.0 | |||||||||
| Valuation allowance | (127.2) | (122.8) | |||||||||
| Total deferred tax assets, net of valuation allowance | 487.1 | 521.2 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Fixed assets and intangible assets | 12.5 | 25.9 | |||||||||
| Right-of-use assets | 50.3 | 24.7 | |||||||||
| Other | 8.6 | 3.9 | |||||||||
| Total deferred tax liability | 71.4 | 54.5 | |||||||||
| Net deferred tax assets | $ | 415.7 | $ | 466.7 | |||||||
The Company periodically evaluates the realizability of its net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is dependent on the Company's ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. As of December 31, 2025, the Company continues to maintain valuation allowances against its deferred tax assets in certain states and one foreign jurisdiction.
As of December 31, 2025, the Company had $13.1 million of federal, $70.3 million of state, and $28.1 million of foreign net operating loss carryforwards available to reduce future taxable income. Of the federal net operating loss carryforwards, $2.2 million will begin to expire in 2032 and $10.9 million will carryforward indefinitely, while state net operating losses begin to expire in 2032. The foreign net operating loss carryforwards will carryforward indefinitely.
As of December 31, 2025, the Company had research credit carryforwards of $218.7 million and $191.4 million for federal and state income tax purposes, respectively, of which $109.3 million and $53.4 million is the unrecognized tax benefit portion related to the research credit carryforwards for federal and state, respectively. The federal and state credit carryforwards will begin to expire in 2041 and 2030, respectively. The Company also had $2.7 million of foreign tax credit carryforwards which will begin to expire in 2035.
Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Company has determined that it has experienced multiple ownership changes and, as a result, the annual utilization of its net operating loss carryforwards and other pre-change attributes will be subject to limitation. However, the Company does not expect that the annual limitations will significantly impact its ability to utilize its net operating loss or tax credit carryforwards prior to expiration.
As of December 31, 2025, the balance of unrecognized tax benefits was $178.3 million of which $118.2 million, if recognized, would affect the effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance of gross unrecognized tax benefits at the beginning of the fiscal year | $ | 162.7 | $ | 149.8 | $ | 127.2 | |||||||||||
| Gross increases related to prior period tax positions | 2.8 | 0.3 | 3.4 | ||||||||||||||
| Gross decreases related to prior period tax positions | (1.0) | (0.2) | (0.7) | ||||||||||||||
| Gross increases related to current period tax positions | 14.0 | 20.7 | 21.1 | ||||||||||||||
| Reductions due to lapse in statute of limitations | (0.2) | — | (1.2) | ||||||||||||||
| Reductions due to settlements with taxing authorities | — | (7.9) | — | ||||||||||||||
| Balance of gross unrecognized tax benefits at the end of the fiscal year | $ | 178.3 | $ | 162.7 | $ | 149.8 | |||||||||||
The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. As of December 31, 2025, the amount of accrued interest and penalties related to uncertain tax positions was $8.6 million. Net interest and penalties recognized/(released) for the years ended December 31, 2025, 2024, and 2023 was $3.6 million, $(1.6) million, and $1.3 million, respectively.
The Company is routinely under audit by federal, state, local, and foreign tax authorities, which may include examinations of the timing and amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service (IRS) is currently examining the Company’s U.S. consolidated federal income tax returns for the tax years ending December 31, 2022 through December 31, 2024. Tax years 2010 and forward remain subject to examination by state taxing authorities. Ireland is the Company’s material foreign tax jurisdiction, and tax years 2016 and forward remain subject to examination by the Irish Revenue Commissioners.
During the fourth quarter of 2025, we changed our assertion regarding our intent to indefinitely reinvest undistributed earnings of our Irish subsidiary and determined that those earnings are no longer considered permanently reinvested. The deferred income tax impact of this change is not material.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 16, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 18, 2022 | |
| 2020 | Feb 19, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 25, 2019 | |
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.