GENERAC HOLDINGS INC. Income Taxes Disclosure

15.	Income Taxes

 

The Company’s provision for income taxes consists of the following:

 

		Year Ended December 31,
		2025				2024				2023
Income (Loss) from continuing operations before income tax expense (benefit)
U.S. Federal		$	137,475			$	369,150			$	218,371
Foreign			61,585				40,288				71,929
Total		$	199,060			$	409,438			$	290,300
Income tax expense / (benefit) from continuing operations
Current:
Federal		$	10,045			$	117,749			$	71,741
State			(2,825	)			20,970				13,802
Foreign			15,406				14,356				22,115
Total current tax expense			22,626				153,075				107,658
Deferred:
Federal			17,913				(46,526	)			(26,504	)
State			3,109				(8,613	)			(5,254	)
Foreign			(7,255	)			(5,565	)			(3,218	)
Total deferred tax expense (benefit)			13,767				(60,704	)			(34,976	)
Total income tax expense
Federal			27,958				71,223				45,237
State and local			284				12,357				8,548
Foreign			8,151				8,791				18,897
Total income tax expense			36,393				92,371				72,682
Change in valuation allowance			1,313				89				498
Provision for income taxes		$	37,706			$	92,460			$	73,180

 

The Company files U.S. federal, U.S. state and foreign jurisdiction tax returns which are subject to examination up to the expiration of the statute of limitations. The Company believes the tax positions taken on its returns would be sustained upon an exam, or where a position is uncertain, adequate reserves have been recorded. As of December 31, 2025, the Company is no longer subject to income tax examinations for United States federal income taxes for tax years prior to 2021. For Wisconsin state income taxes, the statute of limitation is generally four years from the date the tax return is filed, unless the Company carries over certain tax attributes that were generated in prior years (e.g., net operating losses and R&D credits), then the state may also review those years to validate the tax attributes.  The Company has utilized net operating losses or R&D credits on their state income tax returns since 2007.   In addition, the Company is subject to audit by various foreign taxing jurisdictions for tax years 2014 through 2024.

 

The Company is regularly under tax return examination by tax authorities in the various jurisdictions in which we operate. The Company is actively managing the examinations and working to address any open matters. While the Company does not believe any material taxes or penalties are due, there is a possibility that the ultimate tax outcome of an examination may result in differences from what was recorded. Such differences may affect the provision for income taxes in the period in which the determination is made and could impact the Company’s financial results.

 

Significant components of deferred tax assets and liabilities are as follows:

 

		December 31,
		2025				2024
Deferred tax assets:
Accrued expenses		$	54,731			$	52,351
Deferred revenue			39,679				43,261
Inventories			17,853				14,103
Stock-based compensation			8,633				16,959
Operating loss and credit carryforwards			55,585				50,327
Debt refinancing costs			446				-
Bad debt			1,218				1,803
Other			12,829				13,031
Capitalized R&D			30,605				98,323
Prepaid expenses			1,268				-
Valuation allowance			(6,538	)			(5,225	)
Total deferred tax assets			216,309				284,933
Deferred tax liabilities:
Goodwill and intangible assets			183,106				234,271
Depreciation			52,001				49,935
Interest Swap, Derivative			166				6,496
Prepaid expenses			-				3,284
Total deferred tax liabilities			235,273				293,986
Net deferred tax liabilities		$	(18,964	)		$	(9,053	)

 

As of December 31, 2025 and 2024, deferred tax assets of $41,949 and $24,132, and deferred tax liabilities of $60,913 and $33,185, respectively, were reflected in the consolidated balance sheets.

 

The Company maintains a $6,538 valuation allowance against the deferred tax assets primarily related to certain tax loss carryforwards which may not be realized. Realization of the deferred income tax asset related to the tax loss carryforward is dependent upon generating sufficient taxable income in these jurisdictions prior to their expiration. During 2025, the valuation allowance increased by $1,313 on our deferred tax assets where we believe the tax asset may not be fully utilized.

 

At December 31, 2025, the Company had tax loss carryforwards of approximately $197,981, which have varying expiration periods ranging from 2025 to indefinite. For carryforward amounts which the Company believes the losses will expire prior to use, a valuation allowance has been established. For all other carryforwards, the Company believes it will generate sufficient taxable income in these jurisdictions to utilize its loss carryforwards prior to their expiration.

 

At December 31, 2025, the Company had state manufacturing investment tax credit carryforwards of approximately $31,871, which expire between 2028 and 2040. The Company believes it will generate sufficient taxable income in these jurisdictions to fully utilize the credits prior to their expiration.

 

Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows:

 

		December 31,
		2025				2024
Unrecognized tax benefit, beginning of period		$	11,178			$	9,703
Increase in unrecognized tax benefit for positions taken in prior period			745				1,068
Increase in unrecognized tax benefit for positions taken in current period			1,402				943
Statute of limitation expirations			(721	)			(536	)
Settlements			-				-
Unrecognized tax benefit, end of period		$	12,604			$	11,178

 

The unrecognized tax benefit as of  December 31, 2025 and 2024, if recognized, would favorably impact the effective tax rate.

 

As of  December 31, 2025 and 2024, total accrued interest of approximately $1,736 and $1,142, respectively, and accrued penalties of approximately $1,080 and $954, respectively, associated with net unrecognized tax benefits are included in the consolidated balance sheets. Interest and penalties are recorded as a component of income tax expense.

 

The Company does not expect a significant change to the total amount of unrecognized tax benefits during the fiscal year ending December 31, 2026.

 

A reconciliation of the U.S. federal statutory tax rate to the effective tax rate for the years ended December 31, 2025, 2024 and 2023 is as follows:

 

		Year Ended December 31,
		2025								2024								2023
Earnings from continuing operations, before income tax expense		$	199,060							$	409,438							$	290,300
Tax provision at the U.S. federal statutory rate		$	41,803				21.0	%		$	85,982				21.0	%		$	60,963				21.0	%
Federal
Effect of cross-border tax laws			(1,857	)			-0.9	%			(974	)			-0.2	%			4,180				1.4	%
Tax Credits
Research and Development Credit			(7,252	)			-3.6	%			(5,533	)			-1.4	%			(7,361	)			-2.5	%
Other Credits			(310	)			-0.2	%			(485	)			-0.1	%			(1,403	)			-0.5	%
Changes in valuation allowances			-				0.0	%			-				0.0	%			-				0.0	%
Nontaxable or nondeductible items
Share-based compensation expense (benefit)			7,584				3.8	%			(4,720	)			-1.2	%			(1,102	)			-0.4	%
Nondeductible U.S. compensation expense			1,003				0.5	%			4,369				1.1	%			3,648				1.3	%
Worthless Stock Deduction			(6,463	)			-3.2	%			-				0.0	%			-				0.0	%
Effect of changes in tax laws or rates enacted in current period			-				0.0	%			-				0.0	%			-				0.0	%
Other			870				0.4	%			(2,279	)			-0.6	%			3,350				1.2	%
Foreign Tax Effects			(1,329	)			-0.7	%			2,683				0.7	%			1,288				0.4	%
State and local income tax, net of federal income tax benefit (1)			1,837				0.9	%			11,452				2.8	%			7,151				2.5	%
Changes in unrecognized tax benefits			1,820				0.9	%			1,965				0.5	%			2,466				0.8	%
Income tax expense		$	37,706				18.9	%		$	92,460				22.6	%		$	73,180				25.2	%

 

(1)	During the year ended December 31, 2025, state taxes and credits in South Carolina, Wisconsin, California, Illinois, Pennsylvania, New York, Georgia, Michigan, New Jersey, Florida, Massachusetts, Texas, Indiana, Maine, Connecticut comprised greater than 50% of the tax effect in this category.

 

Income taxes paid are as follows:

 

		Year Ended December 31,
		2025				2024				2023
U.S Federal		$	58,803			$	113,496			$	32,886
Total U.S. State and Local			15,132				17,973				12,003
United Kingdom (1)			8,731				-				5,951
Canada (2)			-				-				36,560
Other			6,749				17,359				12,682
Total Foreign			15,480				17,359				55,193
Total income taxes paid, net		$	89,415			$	148,828			$	100,082

 

(1)	The amount of income taxes paid during the year ended December 31, 2024 does not meet the 5% disaggregation threshold.
(2)	The amount of income taxes paid during the years ended December 31, 2025 and 2024 does not meet the 5% disaggregation threshold.