Holley Inc.HLLY
Holley Inc. Income Taxes Disclosure
INCOME TAXES
Income tax expense of the Company consisted of the following:
| For the years ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Current income tax expense (benefit): | |||||||||||
| Federal | $ | (1,129) | $ | 10,266 | |||||||
| State | 778 | 1,028 | |||||||||
| Foreign | 644 | 1,832 | |||||||||
| Total current income tax expense | 293 | 13,126 | |||||||||
| Deferred income tax expense (benefit): | |||||||||||
| Federal | 8,199 | (14,579) | |||||||||
| State | 966 | (1,572) | |||||||||
| Foreign | — | — | |||||||||
| Total deferred income tax expense (benefit) | 9,165 | (16,151) | |||||||||
| Total income tax expense (benefit) | $ | 9,458 | $ | (3,025) | |||||||
The Company’s income before income taxes was subject to taxes in the following jurisdictions:
| For the years ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| United States | $ | 23,486 | $ | (33,234) | |||||||
| Foreign | 5,147 | 6,974 | |||||||||
| Income (loss) before income taxes | $ | 28,633 | $ | (26,260) | |||||||
The following is a reconciliation between the U.S. statutory federal income tax rate and the effective tax rate:
Reported income tax expense for the years ended December 31, 2025 and 2024 differs from the “expected” tax expense (benefit), computed by applying the U.S. Federal statutory income tax rate of 21% to income before income taxes as follows:
| For the years ended December 31, | |||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| Amount | Percentage | Amount | Percentage | ||||||||||||||
| U.S. Federal Statutory Tax Rate | $ | 6,013 | 21.00 | % | $ | (5,515) | 21.00 | % | |||||||||
| State and Local Income Taxes, Net of Federal Income Tax Effect* | 1,378 | 4.81 | % | (430) | 1.64 | % | |||||||||||
| Effect of changes in tax laws or rates enacted in the current period | — | — | % | — | — | % | |||||||||||
| Foreign Tax Effects | |||||||||||||||||
| Canada | |||||||||||||||||
| Withholding Tax | 66 | 0.23 | % | 456 | (1.74) | % | |||||||||||
| Other | (100) | (0.35) | % | 65 | (0.25) | % | |||||||||||
| Italy | |||||||||||||||||
| Effect of Rates Different than Statutory | 307 | 1.07 | % | 272 | (1.04) | % | |||||||||||
| Other | (16) | (0.06) | % | (118) | 0.45 | % | |||||||||||
| Other Foreign Jurisdictions | 135 | 0.47 | % | 149 | (0.57) | % | |||||||||||
| Effect of cross-border tax laws | |||||||||||||||||
| Foreign-derived intangible income (FDII) | 193 | 0.67 | % | (2,034) | 7.75 | % | |||||||||||
| Tax credits | |||||||||||||||||
| Research and development tax credits | (357) | (1.25) | % | 121 | (0.46) | % | |||||||||||
| Other Tax Credits | — | — | % | — | — | % | |||||||||||
| Changes in valuation allowances | — | — | % | — | — | % | |||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||
| Goodwill Impairment | — | — | % | 5,964 | (22.71) | % | |||||||||||
| Earn-outs | 188 | 0.66 | % | (490) | 1.87 | % | |||||||||||
| Change in fair value of Warrants | 254 | 0.89 | % | (1,590) | 6.05 | % | |||||||||||
| Section 162(m) limitation | 611 | 2.13 | % | 345 | (1.31) | % | |||||||||||
| Share-based payment awards | 87 | 0.30 | % | (569) | 2.17 | % | |||||||||||
| Other | 71 | 0.25 | % | (51) | 0.19 | % | |||||||||||
| Changes in unrecognized tax benefits | 181 | 0.63 | % | 486 | (1.85) | % | |||||||||||
| Other Adjustments | 447 | 1.56 | % | (86) | 0.33 | % | |||||||||||
| Total income tax expense | $ | 9,458 | 33.01 | % | $ | (3,025) | 11.52 | % | |||||||||
*State and local taxes in CA, GA, TX, and UT made up greater than 50% of the tax effect in this category.
The components of income tax paid are as follows:
| For the years ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Federal | $ | 7,700 | $ | 10,350 | |||||||
| State | 848 | 277 | |||||||||
| Foreign | |||||||||||
| Italy | 1,781 | 191 | |||||||||
| Canada | 96 | 324 | |||||||||
| Total | $ | 10,425 | $ | 11,142 | |||||||
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. Where relevant, the Company has reflected any material items that were enacted in the consolidated financial statements for the year ended December 31, 2025. Key provisions that impact the Company include the restoration of 100% bonus depreciation, restoration of immediate expensing for domestic research and development costs, and reversion to EBITDA based limitation for business interest expense deductions under Sec 163(j).
The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and deferred tax liabilities consisted of the following:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Reserves on assets | $ | 10,436 | $ | 9,958 | |||||||
| Liabilities not yet deductible | 3,484 | 4,563 | |||||||||
| Interest expense limitation | 17,570 | 22,250 | |||||||||
| Right-of-use liability | 7,928 | 8,498 | |||||||||
| Section 174 expenses | 8,463 | 13,017 | |||||||||
| Capitalized interest | 3,202 | — | |||||||||
| Net operating losses | 1,986 | 1,609 | |||||||||
| Other | 1,553 | 840 | |||||||||
| Total gross deferred tax assets | 54,622 | 60,735 | |||||||||
| Valuation allowance | (1,969) | (1,134) | |||||||||
| Total gross deferred tax assets, net of valuation allowance | 52,653 | 59,601 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Tradename | 33,849 | 32,630 | |||||||||
| Intangible assets | 38,401 | 39,867 | |||||||||
| Goodwill | 14,201 | 11,099 | |||||||||
| Property, plant and equipment | 5,068 | 5,167 | |||||||||
| Right-of-use asset | 7,674 | 8,229 | |||||||||
| Total gross deferred tax liabilities | 99,193 | 96,992 | |||||||||
| Net deferred tax liabilities | $ | 46,540 | $ | 37,391 | |||||||
Based on the Company’s projected pretax earnings, reversal of deferred tax liabilities and other relevant factors, management believes that it is more likely than not that the Company’s deferred tax assets on December 31, 2025 and 2024 will be realized, with the exception of certain state net operating loss carryforwards and state interest expense carryforwards.
On December 31, 2025, the Company's federal and state net operating loss carryforwards for income tax purposes were immaterial. A majority of the U.S. net operating loss carryforwards have no expiration date. The remaining state net operating loss carryforwards expire at various dates through 2035.
Changes in the valuation allowance for deferred tax assets were as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Valuation allowance, January 1 | $ | 1,134 | $ | 5 | |||||||
| Additions charged to expense accounts | 835 | 1,129 | |||||||||
| Valuation allowance, December 31 | $ | 1,969 | $ | 1,134 | |||||||
The valuation allowance on December 31, 2025 is primarily related to certain state interest expense carryforwards and net operating losses which are not more likely than not to be realized.
Uncertain Tax Positions
Under the accounting rules for income taxes, the Company is not permitted to recognize the tax benefit attributable to a tax position unless such position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position. The Company had uncertain tax positions of $504 for the year ended December 31, 2025, and $384 for the year ended December 31, 2024.
The Company recognizes interest accrued related to uncertain tax positions and penalties as income tax expense. In 2025, the Company recognized $48 of interest and $50 of penalties for uncertain tax positions in its consolidated statements of comprehensive income (loss). The liability for the gross amount of interest and penalties at December 31, 2025 is $295. In 2024, the Company recognized $68 of interest and $130 of penalties for uncertain tax positions in its consolidated statements of comprehensive income (loss). The liability for the gross amount of interest and penalties at December 31, 2024 is $198.
Changes in unrecognized tax benefits were as follows:
| December 31 | |||||||||||
| 2025 | 2024 | ||||||||||
| Gross unrecognized tax benefits, January 1 | $ | 384 | $ | 329 | |||||||
| Changes in balance related to tax position taken during prior periods | — | 279 | |||||||||
| Changes in balances related to tax position taken during current period | 120 | 105 | |||||||||
| Settlements | — | (329) | |||||||||
| Gross unrecognized tax benefits, December 31 | $ | 504 | $ | 384 | |||||||
As of December 31, 2025, $398 of this total represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future periods.
The Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions in which it conducts business. The Company is unable to make a reasonably reliable estimate as to when or if cash settlements with taxing authorities may occur. Although the timing of the resolutions and/or closures of audits is highly uncertain, the Company does not anticipate that the resolution of these tax matters or any events related thereto will result in a material change to its consolidated financial position, results of operations or cash flows.
The Company files federal, state, and non-U.S. tax returns in various foreign jurisdictions. For state and non-U.S. tax returns, the Company is generally no longer subject to tax examinations for years prior to 2016. For federal tax returns, the Company is no longer subject to tax examinations for years prior to 2022. The federal tax returns for 2022 through 2024 remain open for examinations. State income tax returns remain open for examination in various states for tax years 2016 through 2024.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 16, 2026 | Showing above |
| 2024 | Mar 14, 2025 | |
| 2023 | Mar 14, 2024 | |
| 2022 | Mar 15, 2023 | |
| 2021 | Mar 15, 2022 | |
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.