Income Taxes
We are not a taxable entity for federal income tax purposes. As such, we do not directly pay federal income taxes. Other than with respect to our corporate subsidiaries and the Texas Margin Tax, our taxable income or loss is includible in the federal income tax returns of each of our partners.
A few of our operations are owned by wholly-owned corporate subsidiaries that are taxable as corporations. During 2025, we paid state income taxes on these operations.
Our income tax expense is as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2025 | | 2024 | | 2023 |
| Current: | | | | | |
| | | | | |
| State | 176 | | | 965 | | | 784 | |
| Foreign | 57 | | | 56 | | | 52 | |
| Total current income tax expense | $ | 233 | | | $ | 1,021 | | | $ | 836 | |
| Deferred: | | | | | |
| Federal | $ | 467 | | | $ | 610 | | | $ | 248 | |
| State | 106 | | | 139 | | | (628) | |
| Total deferred income tax expense (benefit) | $ | 573 | | | $ | 749 | | | $ | (380) | |
| Total income tax expense | $ | 806 | | | $ | 1,770 | | | $ | 456 | |
Deferred income taxes relate to temporary differences based on tax laws and statutory rates that were enacted at the balance sheet date. Deferred tax assets and liabilities consist of the following:
| | | | | | | | | | | |
| | December 31, |
| | 2025 | | 2024 |
| Deferred tax assets: | | | |
| | | |
| | | |
| | | |
| | | |
| Net operating loss carryforwards - Federal | $ | 9,746 | | | $ | 10,695 | |
| Net operating loss carryforwards - State | 2,443 | | | 2,580 | |
| | | |
| Other | 4,949 | | | 3,882 | |
| Total long-term deferred tax asset | 17,138 | | | 17,157 | |
| Valuation allowances | (5,731) | | | (4,938) | |
| Total deferred tax assets | $ | 11,407 | | | $ | 12,219 | |
| Deferred tax liabilities: | | | |
| | | |
| | | |
| Long-term: | | | |
| Fixed assets | $ | (1,652) | | | $ | (1,799) | |
| Intangible assets | (27,033) | | | (27,033) | |
| | | |
| Other | (127) | | | 38 | |
| Total long-term liability | (28,812) | | | (28,794) | |
| Total deferred tax liabilities | $ | (28,812) | | | $ | (28,794) | |
| Total net deferred tax liability | $ | (17,405) | | | $ | (16,575) | |
We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions.
The reconciliation between the partnership’s effective tax rate on income (loss) from operations and the statutory tax rate is as follows:
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| | Year Ended December 31, | | |
| | 2025 | | 2024 | | 2023 |
| (in thousands) | | Percent | | (in thousands) | | Percent | | (in thousands) | | Percent |
| Income (loss) from continuing operations before income taxes | $ | 31,311 | | | | | $ | (48,995) | | | | | $ | 47,633 | | | |
| | | | | | | | | | | |
| Tax expense (benefit) at federal statutory rate | $ | 6,575 | | | 21.0% | | $ | (10,289) | | | 21.0% | | $ | 10,003 | | | 21.0% |
| Partnership income (loss) not subject to federal income tax | (6,757) | | | (21.6)% | | 9,960 | | | (20.3)% | | (9,381) | | | (19.7)% |
| State and local income tax (benefit), net of federal effect | 117 | | | 0.4% | | 1,316 | | | (2.7)% | | (415) | | | (0.9)% |
| Foreign income taxes | 57 | | | 0.2% | | 56 | | | (0.1)% | | 52 | | | 0.1% |
| | | | | | | | | | | |
| Valuation allowance | 699 | | | 2.2% | | 853 | | | (1.7)% | | 323 | | | 0.7% |
| | | | | | | | | | | |
| Other | 115 | | | 0.4% | | (126) | | | 0.3% | | (126) | | | (0.3)% |
| Income tax expense | $ | 806 | | | 2.6% | | $ | 1,770 | | | (3.6)% | | $ | 456 | | | 1.0% |
| | | | | | | | | | | |
At December 31, 2025, 2024 and 2023, we had no uncertain tax positions.
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.