Grove Collaborative Holdings, Inc.GROV
Grove Collaborative Holdings, Inc. Income Taxes Disclosure
Provision for Income Taxes
The Company is subject to U.S. federal, state, and local corporate income taxes.
The Company’s effective income tax rate reconciliation is composed of the following for the periods presented:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | |||||||
| State income taxes, net of federal tax benefit | (0.1) | % | — | % | |||||||
| Stock-based compensation | (11.7) | % | (9.2) | % | |||||||
| Remeasurement of derivative liabilities | 7.6 | % | 0.1 | % | |||||||
| Other | (0.6) | % | — | % | |||||||
| Change in valuation allowance | (16.3) | % | (12.0) | % | |||||||
| Provision for income taxes | (0.1) | % | (0.1) | % | |||||||
The components of net deferred tax assets are as follows (in thousands):
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 131,563 | $ | 125,850 | |||||||
| Deferred revenue | 1,546 | 1,745 | |||||||||
| Inventory reserve and uniform capitalization | 873 | 2,509 | |||||||||
| Operating lease liabilities | 3,557 | 4,364 | |||||||||
| Accruals and other reserves | 729 | 1,332 | |||||||||
| Stock-based compensation | 4,107 | 5,570 | |||||||||
| Business interest carryforwards | 10,127 | 7,660 | |||||||||
| Depreciation and amortization | 817 | — | |||||||||
| Other | 223 | 268 | |||||||||
| Total deferred tax assets | 153,542 | 149,298 | |||||||||
| Less: valuation allowance | (150,486) | (145,711) | |||||||||
| Total deferred tax assets, net of valuation allowance | 3,056 | 3,587 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right-of-use assets | (3,056) | (2,344) | |||||||||
| Depreciation and amortization | — | (1,243) | |||||||||
| Total deferred tax liabilities | (3,056) | (3,587) | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
The following summarizes the activity related to valuation allowances on deferred tax assets:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Valuation allowance, as of beginning of year | $ | 145,711 | $ | 139,033 | |||||||
| Valuation allowance established | 5,346 | 5,947 | |||||||||
| Changes to existing valuation allowances | (571) | 731 | |||||||||
| Valuation allowance, as of end of year | $ | 150,486 | $ | 145,711 | |||||||
As of December 31, 2024, the Company had federal and state net operating loss (“NOL”) carryforwards of $561.9 million and $245.9 million, respectively. Federal NOL carryforwards $536.9 million have no expiration and can only be used to offset 80% of the Company’s future taxable income. The state NOL carryforwards include $211.7 million with definitive expiration dates and $34.2 million with no expiration. The state NOLs are presented as an apportioned amount.
Valuation Allowance
The realization of deferred tax assets is based on historical tax positions and estimates of future taxable income. We evaluate both the positive and negative evidence that we believe is relevant in assessing whether we will realize the deferred tax assets. A valuation allowance is recorded when it is more likely than not that some portion of the deferred tax assets will not be realized. To the extent that a valuation allowance has been established and it is subsequently determined that it is more likely than not that the deferred tax assets will be recovered, the valuation allowance will be released.
The Company’s valuation allowance was $150.5 million as of December 31, 2024, which represents an increase of $4.8 million from the prior year. The increase in the valuation allowance primarily relates to the following: (i) an increase of $5.3 million relating to current year operating activity, and (ii) an increase of $0.6 million relating to changes to the state blended rate.
The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. We consider the scheduled reversal of deferred tax liabilities (including the effect of available carryback and carryforward periods), as well as projected pre-tax book income in making this assessment. To fully utilize the NOL and tax credits carryforwards we will need to generate sufficient future taxable income in each respective jurisdiction.
Uncertain Tax Positions
During the years ended December 31, 2024 and 2023, the Company did not record any uncertain tax positions and the balances of unrecognized tax positions were nominal.
The amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statute of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.
The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes. Accrued interest and penalties are included within the related tax liability.
The Company files income tax returns in the U.S. federal and various state and local jurisdictions. The Company has no ongoing tax examinations by the U.S. income tax authorities at this timeAbout 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.