GrowGeneration Corp.GRWG
GrowGeneration Corp. Income Taxes Disclosure
7. INCOME TAXES
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law, introducing significant changes to U.S. federal income tax law. The OBBBA made permanent or modified several provisions originally enacted under the Tax Cuts and Jobs Act of 2017, and introduced new rules affecting both domestic and international tax regimes. Under ASC 740, the effects of new tax legislation are recognized in the period that includes the enactment date. The Company has evaluated the provisions of the OBBBA and their impact on its financial statements as of the enactment date, in accordance with ASC 740. The legislation did not have a material impact on the Company's income tax expense or effective income tax rate for the year ended December 31, 2025. The ultimate impact of the OBBBA on the Company’s tax position and financial statements will depend on future guidance, the Company’s actual results, and potential changes in state tax conformity.
The Company's income is derived solely from operations in the in the United States. The provision for income taxes for the years ended December 31, 2025, 2024, and 2023 consisted of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current tax expense (benefit): | |||||||||||||||||
| Federal | $ | — | $ | — | $ | (115) | |||||||||||
| State | 191 | 158 | 147 | ||||||||||||||
| Deferred tax (benefit): | |||||||||||||||||
| Federal | — | — | — | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Provision for income taxes | $ | 191 | $ | 158 | $ | 32 | |||||||||||
The tax effects of temporary differences that gave rise to the Company's deferred tax assets and liabilities as of December 31, 2025 and 2024 were as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating losses and attributes carryovers | $ | 31,800 | $ | 24,897 | |||||||
| Deferred right-of-use lease liabilities | 7,420 | 9,750 | |||||||||
| Share-based compensation | 88 | 586 | |||||||||
| Accumulated depreciation and amortization | 29,929 | 31,804 | |||||||||
| Capitalized research costs | 280 | 397 | |||||||||
| Accruals and other | 2,638 | 2,039 | |||||||||
| Total deferred tax assets | 72,155 | 69,473 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Deferred right-of-use lease assets | (6,809) | (9,071) | |||||||||
| Total deferred tax liabilities | (6,809) | (9,071) | |||||||||
| Net deferred tax asset | 65,346 | 60,402 | |||||||||
| Valuation allowance | (65,346) | (60,402) | |||||||||
| Net deferred tax asset after valuation allowance | $ | — | $ | — | |||||||
The Company regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction by jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company’s management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the year ended December 31, 2025, the Company has provided a valuation allowance against the Company’s U.S. net deferred tax assets. The net change in the valuation allowance for the year ended December 31, 2025 was an increase of $4.9 million.
As of December 31, 2025, the Company had cumulative federal net operating losses of $126.8 million, which have an indefinite carryforward period. As of December 31, 2025 and 2024, the Company had cumulative state net operating loss carryforwards of $100.7 million and $81.6 million, respectively. State net operating loss carryforwards will begin to expire in calendar year 2035.
In certain circumstances, due to ownership changes, the Company’s net operating loss carryforwards may be subject to limitations under Section 382 of the Internal Revenue Code ("IRC"). The Company has not completed a study to assess whether an ownership change has occurred, as defined by IRC Section 382, or whether there have been ownership changes since the Company's formation due to the complexity of cost associated with such a study. The Company estimates that if
such a change did occur, the federal and state net operating loss carryforwards that can be utilized in the future could be significantly limited. There can be no assurance that the Company will ever be able to realize the benefit of some or all of the federal and state loss carryforwards, either due to ongoing operating losses or due to ownership change limitations.
The Company has assessed potential limitations on its tax attributes and has assigned a full valuation allowance against them as of December 31, 2025.
A reconciliation of the U.S. federal statutory income tax rate to our effective tax rate after the adoption of ASU 2023-09 for the year ended December 31, 2025 is as follows:
| Year ended December 31, | |||||||||||
| 2025 | |||||||||||
| (in thousands) | Percent | ||||||||||
| $ | (4,976) | 21 | % | ||||||||
State and Local Income Taxes, Net of Federal Benefit (1) | 1,533 | (6) | % | ||||||||
| Changes in Valuation Allowances | 3,121 | (13) | % | ||||||||
| Nondeductible items | 164 | (1) | % | ||||||||
| Other items adjustments | 349 | (1) | % | ||||||||
| Effective Tax Rate | $ | 191 | — | % | |||||||
(1) The states and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include California and Michigan. | |||||||||||
A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate prior to the adoption of ASU 2023-09 for the years ended December 31, 2024 and 2023 was as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory income tax rate | 21 | % | 21 | % | |||||||
| State and local income taxes (net of federal tax benefit) | 3 | % | 4 | % | |||||||
| Share-based compensation | — | % | (1) | % | |||||||
| Valuation allowance | (22) | % | (24) | % | |||||||
| Other | (2) | % | — | % | |||||||
| Effective income tax rate | — | % | — | % | |||||||
The amounts of cash income taxes paid by the Company during the year ended December 31, 2025 were as follows:
| Year ended December 31, | |||||
| 2025 | |||||
| State and local | $ | 141 | |||
| Income taxes, net of amounts refunded | $ | 141 | |||
The Company paid $0.1 million of cash for income taxes during each of the years ended December 31, 2024 and 2023.
Uncertain Tax Benefits
The Company has not identified any uncertain tax positions as of December 31, 2025. The Company recognizes interest and penalties accrued related to uncertain tax benefits in the income tax provision. There were no interest and penalties included in other long-term liabilities on the accompanying Consolidated Balance Sheets for years ended December 31, 2025 and 2024. The Company does not expect any significant changes in its unrecognized tax benefits within 12 months of the reporting date. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. No tax years for the Company are currently under examination by the IRS or state and local tax authorities for income tax purposes. Generally, the Company's 2022 through 2024 fiscal years remain open for examination and assessment. For
various states, the examination and assessment remain open for 2020 through 2024. Years prior to 2020 remain open solely for purpose of examination of the Company's loss and credit carryforwards.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 20, 2026 | Showing above |
| 2024 | Mar 13, 2025 | |
| 2023 | Mar 13, 2024 | |
| 2022 | Mar 16, 2023 | |
| 2021 | Mar 10, 2022 | |
| 2020 | Mar 29, 2021 | |
| 2019 | Mar 27, 2020 | |
| 2018 | Apr 1, 2019 | |
| 2017 | Mar 27, 2018 | |
| 2016 | Mar 31, 2017 | |
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.