HERC HOLDINGS INCHRI
HERC HOLDINGS INC Income Taxes Disclosure
Income Taxes
The components of income before income taxes for the periods were as follows (in millions):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (8) | $ | 302 | $ | 443 | |||||||||||
| Foreign | 9 | (11) | 4 | ||||||||||||||
| Income before income taxes | $ | 1 | $ | 291 | $ | 447 | |||||||||||
The provision for income taxes consists of the following (in millions):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 2 | $ | 8 | $ | — | |||||||||||
| Foreign | (1) | 4 | 4 | ||||||||||||||
| State and local | 8 | 9 | 7 | ||||||||||||||
| Total current | 9 | 21 | 11 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (3) | 63 | 86 | ||||||||||||||
| Foreign | 3 | (6) | (1) | ||||||||||||||
| State and local | (9) | 2 | 4 | ||||||||||||||
| Total deferred | (9) | 59 | 89 | ||||||||||||||
| Total income tax provision | $ | — | $ | 80 | $ | 100 | |||||||||||
The principal items of the U.S. and foreign net deferred tax assets (liabilities) are as follows (in millions):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Employee benefit plans | $ | 2 | $ | 4 | |||||||
| Tax credit carryforwards | 33 | 5 | |||||||||
| Right-of-use assets | 372 | 230 | |||||||||
| Deferred interest | 78 | 80 | |||||||||
| Accrued expenses | 65 | 59 | |||||||||
| Net operating loss carryforwards | 81 | 42 | |||||||||
| Total deferred tax assets | 631 | 420 | |||||||||
| Less: valuation allowance | (13) | (5) | |||||||||
| Total net deferred tax assets | 618 | 415 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Lease liabilities | (361) | (218) | |||||||||
| Prepaid expenses | (3) | (4) | |||||||||
| Depreciation on tangible assets | (1,350) | (913) | |||||||||
| Intangible assets | (350) | (80) | |||||||||
| Total deferred tax liabilities | (2,064) | (1,215) | |||||||||
| Net deferred tax liability | $ | (1,446) | $ | (800) | |||||||
Management also records deferred tax assets for unutilized net operating loss carryforwards in various tax jurisdictions. As of December 31, 2025, a deferred tax asset of $51 million was recorded for unutilized federal net operating loss carryforwards ("NOL carryforwards"). The total federal NOL carryforwards are $253 million and have an indefinite carryforward period. State NOL carryforwards have generated a deferred tax asset of $27 million and expire over various years beginning in 2026. Foreign NOL carryforwards have generated a deferred tax asset of $2 million and expire beginning in 2046.
As of December 31, 2025, deferred tax assets of $33 million were recorded for federal and various state tax credit carryforwards and expire in various years beginning in 2031.
In determining the valuation allowance, an assessment of positive and negative evidence was performed regarding realization of the net deferred tax assets in accordance with Topic 740. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carryforwards and estimates of projected future taxable income. Based on the assessment, as of December 31, 2025, total valuation allowances of $13 million were recorded against deferred tax assets. Although realization is not assured, the Company has concluded that it is more likely than not the remaining deferred tax assets of $618 million will be realized and as such no valuation allowance has been provided on these assets.
The income tax in the accompanying consolidated statements of operations differs from the income tax calculated by applying the statutory federal income tax rate to income before income taxes due to the following (in millions):
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | %(c) | Amount | % | Amount | % | ||||||||||||||||||||||||||||||
| U.S. federal statutory tax rate | $ | — | 21 | % | $ | 61 | 21 | % | $ | 94 | 21 | % | |||||||||||||||||||||||
State tax, net of federal income tax(a) | (4) | (305) | % | 9 | 3 | % | 10 | 2 | % | ||||||||||||||||||||||||||
| Foreign tax effects | |||||||||||||||||||||||||||||||||||
| Canada | — | — | % | — | — | % | 1 | — | % | ||||||||||||||||||||||||||
| Tax credits | |||||||||||||||||||||||||||||||||||
| Energy related credits | (15) | (1,217) | % | (5) | (2) | % | (3) | (1) | % | ||||||||||||||||||||||||||
| Research and development credits | (1) | (48) | % | (1) | — | % | (2) | — | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
Goodwill(b) | — | — | % | 14 | 5 | % | — | — | % | ||||||||||||||||||||||||||
| Nondeductible compensation | 2 | 136 | % | 3 | 1 | % | 9 | 2 | % | ||||||||||||||||||||||||||
| Transaction expenses | 18 | 1358 | % | — | — | % | — | — | % | ||||||||||||||||||||||||||
| Meals and entertainment | 1 | 104 | % | 1 | — | % | 1 | — | % | ||||||||||||||||||||||||||
| Windfall (shortfall) | (1) | (56) | % | (2) | (1) | % | (11) | (2) | % | ||||||||||||||||||||||||||
| Other adjustments | — | — | % | — | — | % | 1 | — | % | ||||||||||||||||||||||||||
| Effective tax rate | $ | — | — | % | $ | 80 | 27 | % | $ | 100 | 22 | % | |||||||||||||||||||||||
(a) State taxes in Arizona, California, Florida, Georgia, Louisiana, North Carolina, South Carolina, Tennessee and Texas make up the majority (greater than 50%) of the tax effect in this category for 2025, 2024, and 2023.
(b) Relates to non-deductible goodwill impairment on Cinelease assets held for sale.
(c) The 2025 effective tax rate does not recalculate as presented due to financial statement rounding.
The income taxes paid (net of refunds received) for the periods were as follows (in millions):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | 7 | $ | — | $ | 14 | |||||||||||
| State | |||||||||||||||||
| California | 3 | 2 | — | ||||||||||||||
| Florida | 1 | 3 | 3 | ||||||||||||||
| Georgia | — | 1 | 1 | ||||||||||||||
| Illinois | — | 1 | 1 | ||||||||||||||
| Massachusetts | — | 1 | — | ||||||||||||||
| New Jersey | — | — | 1 | ||||||||||||||
| New York | — | — | 1 | ||||||||||||||
| Oregon | 1 | — | — | ||||||||||||||
| Pennsylvania | 1 | — | — | ||||||||||||||
| Texas | 1 | 1 | — | ||||||||||||||
| All Other | 5 | 1 | 5 | ||||||||||||||
| Total State | 12 | 10 | 12 | ||||||||||||||
| Foreign | |||||||||||||||||
| Canada | 5 | 2 | 4 | ||||||||||||||
| Total income taxes paid | $ | 24 | $ | 12 | $ | 30 | |||||||||||
As a result of the Tax Cuts and Jobs Act of 2017, previously undistributed earnings from foreign subsidiaries are deemed to have been repatriated as of December 31, 2017 for federal income tax purposes. Beginning in 2018, companies are generally able to repatriate earnings from foreign subsidiaries with no U.S. federal income tax impact. As of December 31, 2025, the Company continues to assert that earnings from foreign operations are not permanently invested. The Company, as a matter of policy, looks to repatriate foreign earnings in a tax efficient manner. Many foreign jurisdictions impose taxes on distributions to other jurisdictions. Due to the variations and complexities of these laws, the Company believes it would be impractical to calculate and accrue these taxes beyond the normal earnings and profits standard for U.S. tax purposes.
As of December 31, 2025, the Company is maintaining the assertion that future earnings associated with the potential stock sale or liquidation of foreign subsidiaries are permanently reinvested. Accordingly, the Company has not recorded any deferred tax liabilities associated with these book-to-tax differences. The Company has analyzed the potential tax liability associated with these differences to be approximately $73 million.
The total cumulative amount of unrecognized tax benefits is $17 million and $15 million as of December 31, 2025 and 2024, respectively.
The Company files one or more income tax returns in the U.S. and non-U.S. jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities and open tax years span from 2014 to 2024. The Company is currently under audit for the 2014 through 2016 income tax years. Several U.S. state and non-U.S. jurisdictions are under audit. The IRS completed its audit of the Company's 2016 consolidated income tax return, in which Herc was included, and had no changes to the previously filed tax return. The Company is under audit for 2025 as part of the IRS Compliance Assurance Program. The Company does not expect any material assessments resulting from these audits.
The Organization for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as "Pillar 2"), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2. The Company has evaluated the impact of Pillar 2 on its effective tax rate, its
consolidated results of operation, financial position, and cash flows and have determined there is no impact to the Company in 2025.
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act and the restoration of favorable tax treatment for certain business provisions, particularly with respect to allowing accelerated tax deductions for qualified property and equipment expenditures and the business interest expense limitation. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. While the Company expects certain provisions of the OBBBA to change the timing of cash tax payments in the current fiscal year and future year periods, the provisions are not expected to have a material impact on the effective tax rate.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 13, 2024 | |
| 2022 | Feb 14, 2023 | |
| 2021 | Feb 10, 2022 | |
| 2020 | Feb 18, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 15, 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.