HF Foods Group Inc.HFFG

HF Foods Group Inc. Income Taxes Disclosure

10-KFiled Mar 16, 20265 min read
Note 12 - Income Taxes
The provision (benefit) for income taxes of the Company for the years ended December 31, 2025 and 2024 consists of the following:

Year Ended December 31,
(In thousands)20252024
Current:
Federal$(778)$1,346 
State392 255 
Current income taxes (benefit)(386)1,601 
Deferred income taxes (benefit):
Federal(3,768)(756)
State(1,816)1,120 
Deferred income taxes (benefit):(5,584)364 
Total income tax expense (benefit)$(5,970)$1,965 

Cash paid for income taxes (net of refunds received) by jurisdiction after the prospective adoption of ASU 2023-09 for the year ended December 31, 2025 is as follows:

Year ended
December 31,
(In thousands)2025
Federal$(252)
State
Arizona43
California314
Colorado31
Illinois30
North Carolina26
Texas40
Utah18
Virginia73
All other states (individually less than 5% of total)35
Total income taxes paid, net of refunds$358 

The Company’s effective income tax rates for the years ended December 31, 2025 and 2024 were 13.2% and (4.3)%, respectively. The determination of the Company’s overall effective income tax rate requires the use of estimates.

The effective income tax rate reflects the income earned and taxed in U.S. federal and various state jurisdictions based on enacted tax law, permanent differences between book and tax items, tax credits and the Company’s change in relative income in each jurisdiction. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company’s effective income tax rate in the future. The Company has immaterial operations outside the U.S., as such, no foreign income tax was recorded.

The provision for income taxes differed from the amount obtained by applying the statutory U.S. federal income tax rate to income before income taxes. The reconciliations of the statutory income tax rate to the effective income tax rate reflecting the prospective adoption of ASU 2023-09 are as follows:
Year Ended December 31,
2025
(In thousands)AmountPercent
Federal statutory tax rate (21%)$(9,509)21.0 %
State and local income tax, net of federal income tax effect (1)
(1,089)2.4 
Tax credits(140)0.3 
Changes in valuation allowance— — 
Nontaxable or Nondeductible items
Executive compensation limit113 (0.2)
Meals and Entertainment42 (0.1)
Goodwill impairment4,664 (10.3)
Other nontaxable or nondeductible items32 (0.1)
Changes in unrecognized tax benefits— — 
Other adjustments(83)0.2 
Total income tax benefit$(5,970)13.2 %
_______________
(1)    State taxes in CA made up the majority (greater than 50 percent) of the tax effect in this category


The reconciliation from the statutory U.S. federal tax rate to our effective income tax rate prior to the adoption of ASU 2023-09 is as follows (in thousands, except percentages):

Year Ended
December 31,
2024
Federal statutory tax rate (21%)21.0 %
State statutory tax rate(1.1)%
U.S permanent differences(0.3)%
Noncontrolling interests0.2 %
Officers’ compensation(0.4)%
Rate change(1.2)%
Change in valuation allowance1.6 %
Tax credits0.3 %
Uncertain tax positions0.3 %
Stock compensation(0.2)%
Dissolution of HFFI(1.6)%
SEC Settlement(1.8)%
Goodwill impairment charges(21.1)%
Effective tax rate(4.3)%
Temporary differences and carryforwards of the Company that created significant deferred tax assets and liabilities are as follows:
(In thousands)December 31, 2025December 31, 2024
Deferred tax assets:
Allowance for expected credit losses$303 $343 
Inventories1,060 967 
Equity compensation563 465 
Compensation related accruals888 948 
Fair value change in interest rate swap contracts282 — 
Leases11,657 4,956 
Accrued expenses571 792 
Interest expense limitation— 2,297 
Equity investments161 163 
Net operating loss carryforwards1,236 — 
Other398 283 
Total deferred tax assets17,119 11,214 
Deferred tax liabilities:
Property and equipment(9,895)(6,751)
Intangible assets(24,417)(30,609)
Right of use assets(6,080)(2,646)
Fair value change in interest rate swap contracts— (170)
Other(535)(430)
Total deferred tax liabilities(40,927)(40,606)
Less: Valuation allowance— — 
Net deferred tax liabilities$(23,808)$(29,392)

As of December 31, 2025, the Company had federal and various state net operating loss (“NOL”) carryforwards of $5.5 million and $1.9 million, respectively. The federal net operating loss carryforwards do not expire, while the state net operating loss carryforwards have various expiration dates. In addition, the Company had federal tax credit carryforwards of approximately $0.1 million. As of December 31, 2024, the Company had no federal or state net operating loss carryforwards.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During the year ended December 31, 2025, management concluded that it was more likely than not that the Company would be able to realize the benefit of the deferred tax assets in the future. We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income and gains in future periods to realize the tax benefits associated with the deferred tax assets. As such, no valuation allowances have been recorded in the aforementioned tax years.

The Company will continue to assess the need for a valuation allowance in the future by evaluating both positive and negative evidence that may exist.

Unrecognized Tax Benefits

Year Ended December 31,
(In thousands)20252024
Total unrecognized tax benefits on January 1,$— $106 
Decrease related to positions taken on items from prior years— (106)
Increase related to positions taken in the current year— — 
Total unrecognized tax benefits on December 31,$— $— 
The Company has no unrecognized tax benefits as of December 31, 2025 and 2024. This is due to the statute of limitations expiring as of December 31, 2024 on previously unrecognized tax benefits.

The Company recognizes interest and penalties related to unrecognized tax positions in income tax expense. As of December 31, 2025 and 2024, the Company had no accrued penalties or interest. During the year ended December 31, 2024, the Company reversed all remaining accrued penalties and accrued interest related to unrecognized tax benefits as an income tax benefit.

As of December 31, 2025, the Company’s U.S. federal and state income tax returns for tax years 2022 through 2024 remain subject to examination by tax authorities.
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Historical Timeline

Fiscal YearFiled
2025Mar 16, 2026Showing above
2024Mar 17, 2025
2023Mar 26, 2024
2022Mar 31, 2023
2021Jan 31, 2023

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.

Other Available Disclosures

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