DT Midstream, Inc.DTM
DT Midstream, Inc. Income Taxes Disclosure
INCOME TAXES
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Significant Accounting Policy – Accounting for Income Taxes
We record the effect of income taxes in accordance with GAAP, which provides for the use of an asset and liability approach. Deferred income tax assets and liabilities are recognized for temporary differences between the basis of assets and liabilities for financial reporting and tax purposes and measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities as a result of changes in the enacted tax rates is recognized in earnings in the period of enactment. Our recognition of deferred tax assets is based upon a more-likely-than-not criterion. We routinely assess realizability based on objectively-weighted, available positive and negative evidence.
We account for uncertainties in income taxes using a benefit recognition model with a two-step approach: a more-likely-than-not recognition criterion, and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than a 50% likelihood of being realized upon ultimate settlement. If the benefit does not meet the more likely than not criteria for being sustained on its technical merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold.
Midwest Pipeline Acquisition
The Midwest Pipeline Acquisition, which closed on December 31, 2024, was treated as a deemed asset acquisition for federal and state income tax purposes pursuant to an Internal Revenue Code §338(h)(10) election. Accordingly, the majority of deferred income tax assets and liabilities of the acquired entities were eliminated as the tax bases were increased to fair market value which equals net book value. The election resulted in tax-deductible goodwill which was subject to revision during the applicable one-year measurement period. During the year ended December 31, 2025, we completed the tax purchase price allocation study under Internal Revenue Code §1060, and tax goodwill was adjusted accordingly.
As a result of changes to state apportionment factors and rates due to the Midwest Pipeline Acquisition, during the year ended December 31, 2024, the Company recorded a remeasurement to increase the existing deferred income tax liabilities of DT Midstream (acquiring entity) by $22 million which was charged to income tax expense.
Tax Legislation
On July 4, 2025, the OBBBA was signed into law in the U.S., which contains a broad range of tax reform provisions that amend, eliminate, and extend tax rules under the Inflation Reduction Act. Impacts to the Company of the OBBBA include permanent reinstatement of bonus depreciation on qualified property and modifications to the calculation for excess business interest expense limitation to the current tax estimate. The impact will defer the payment of a portion of our current federal tax for multiple years, but because our tax provision is based on both current and deferred tax, the impact to our income statement is not material.
As part of tax reform enacted in December 2024, the State of Louisiana implemented a flat 5.5% corporate income tax rate (previously tiered from 3.5% to 7.5%) effective January 1, 2025. In accordance with tax accounting guidance, DT Midstream recorded a deferred income tax benefit of $4 million as of December 31, 2024. Other enacted law changes include the repeal of the Louisiana franchise tax and increased state sales and use tax rates, which will take effect in future years and are not expected to have a material impact on the financial statements.
On July 8, 2022, the Commonwealth of Pennsylvania enacted House Bill 1342 which includes a corporate income tax rate reduction from 9.99% to 4.99% that will phase-in over a nine-year period.
Income before income taxes, by tax jurisdiction, was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (millions) | |||||||||||||||||
| United States | $ | 596 | $ | 502 | $ | 499 | |||||||||||
| Canada | 2 | 2 | 1 | ||||||||||||||
| Total income before income taxes | $ | 598 | $ | 504 | $ | 500 | |||||||||||
Our total Income Tax Expense varied from the statutory federal income tax rate for the following reasons:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| (millions, except percentages) | |||||||||||||||||||||||||||||||||||
| Income tax expense at U.S. federal statutory rate | $ | 126 | 21.0% | $ | 106 | 21.0% | $ | 105 | 21.0% | ||||||||||||||||||||||||||
State and local income taxes, net of federal income tax effect (a) | 24 | 4.0% | 33 | 6.6% | — | — | |||||||||||||||||||||||||||||
| Other, net | (6) | (0.9)% | (2) | (0.3)% | (1) | (0.1)% | |||||||||||||||||||||||||||||
| Income Tax Expense and Effective Income Tax Rate | $ | 144 | 24.1% | $ | 137 | 27.3% | $ | 104 | 20.9% | ||||||||||||||||||||||||||
(a) The state that contributed to the majority (greater than 50%) of the tax effect in this category was Louisiana in each of the years ended December 31, 2025, 2024, and 2023.
The State and local income taxes, net of federal effect line in the table above includes state deferred remeasurements recorded in each of the respective years discussed below.
Our 2025 effective tax rate includes $22 million of state and local statutory tax expense in addition to a $2 million expense driven by updates to state rates and apportionment factors primarily related to tax legislation, as discussed above.
Our 2024 effective tax rate includes $18 million of state and local statutory tax expense in addition to a $15 million expense driven by updates to state rates and apportionment factors, primarily related to the Midwest Pipeline Acquisition and tax legislation, as discussed above.
Our 2023 effective tax rate includes $18 million of state and local statutory tax expense offset by the impact of state tax rate changes of an $18 million benefit driven by changes in tax status and updates to state apportionment which were completed in 2023 as a part of ongoing corporate tax structuring, simplification initiatives, and initial post-separation full-year tax return filings.
Components of Income tax expense were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (millions) | |||||||||||||||||
| Current income tax expense (benefit) | |||||||||||||||||
| Federal | $ | 1 | $ | 13 | $ | (4) | |||||||||||
| State and other | 6 | 4 | (2) | ||||||||||||||
| Total current income tax expense (benefit) | 7 | 17 | (6) | ||||||||||||||
| Deferred income tax expense | |||||||||||||||||
| Federal | 114 | 84 | 109 | ||||||||||||||
| State and other | 23 | 36 | 1 | ||||||||||||||
| Total deferred income tax expense | 137 | 120 | 110 | ||||||||||||||
| Total Income Tax Expense | $ | 144 | $ | 137 | $ | 104 | |||||||||||
Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in our Consolidated Financial Statements. We believe it is more likely than not that we will generate sufficient taxable income in future periods to realize our deferred tax assets.
Deferred tax assets (liabilities) were comprised of the following:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (millions) | |||||||||||
| Deferred income tax balance components | |||||||||||
| Property, plant, and equipment | $ | (403) | $ | (369) | |||||||
| Federal net operating loss carry-forward | 110 | 117 | |||||||||
| State and local net operating loss carry-forward, net of federal benefit | 86 | 75 | |||||||||
| Investment in equity method investees and partnerships | (1,057) | (970) | |||||||||
| Other | (6) | 18 | |||||||||
| Net deferred income tax liability | $ | (1,270) | $ | (1,129) | |||||||
| Total deferred income tax assets and liabilities | |||||||||||
| Deferred income tax assets | $ | 271 | $ | 266 | |||||||
| Deferred income tax liabilities | (1,541) | (1,395) | |||||||||
| Net deferred income tax liability | $ | (1,270) | $ | (1,129) | |||||||
We have recorded a deferred tax asset related to a federal net operating loss carry-forward of $110 million as of December 31, 2025. U.S. federal net operating losses will be available to be carried forward indefinitely and available to offset 80% of taxable income in future years.
We have recorded state and local deferred tax assets related to net operating loss carry-forwards of $86 million as of December 31, 2025. Of the state and local net operating loss carry-forwards, $80 million can be carried indefinitely and $6 million will expire from 2031 through 2043 and are available to offset varying amounts of taxable income in future years.
Income taxes paid, net of refunds received, were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (millions) | |||||||||||||||||
| Federal | $ | 2 | $ | 7 | $ | 6 | |||||||||||
| Foreign - Canada | 1 | — | — | ||||||||||||||
| State and local | |||||||||||||||||
| Michigan | 2 | 3 | 3 | ||||||||||||||
| Minnesota | 1 | — | — | ||||||||||||||
| Pennsylvania | (3) | — | 6 | ||||||||||||||
| West Virginia | 1 | — | 1 | ||||||||||||||
| Other | 1 | 2 | 6 | ||||||||||||||
| Total state and local | 2 | 5 | 16 | ||||||||||||||
| Total Income Taxes Paid | $ | 5 | $ | 12 | $ | 22 | |||||||||||
Amounts paid to Canada reflect Canadian federal corporate tax withholding. Foreign tax expense was not material to the Company’s effective tax rate for the periods presented.
Uncertain Tax Positions
As of December 31, 2025 and 2024, we did not have any unrecognized tax benefits. Our income tax returns remain subject to examination by federal, state, and local taxing jurisdictions.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 16, 2024 | |
| 2022 | Feb 16, 2023 | |
| 2021 | Feb 25, 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.