Kodiak Gas Services, Inc.KGS
Kodiak Gas Services, Inc. Income Taxes Disclosure
17. Income Taxes
Income before income taxes consists of the following:
Year Ended December 31, | |||||||||||||||||
(in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Income before income taxes: | |||||||||||||||||
| United States | $ | 117,415 | $ | 74,650 | $ | 35,136 | |||||||||||
| Foreign | (3,943) | 1,258 | — | ||||||||||||||
| Total income before income taxes | $ | 113,472 | $ | 75,908 | $ | 35,136 | |||||||||||
Income tax expense consisted of the following:
Year Ended December 31, | |||||||||||||||||
(in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current income taxes: | |||||||||||||||||
| Federal | $ | 1,523 | $ | 4,482 | $ | 4,668 | |||||||||||
| State and local | 4,330 | 4,085 | 2,539 | ||||||||||||||
| Foreign | 368 | 1,578 | — | ||||||||||||||
| Total current tax | 6,221 | 10,145 | 7,207 | ||||||||||||||
| Deferred income taxes: | |||||||||||||||||
| Federal | 24,054 | 14,344 | 1,980 | ||||||||||||||
| State and local | 2,996 | 1,499 | 5,883 | ||||||||||||||
| Foreign | (1,387) | (414) | — | ||||||||||||||
| Total deferred tax | 25,663 | 15,429 | 7,863 | ||||||||||||||
| Income tax expense | $ | 31,884 | $ | 25,574 | $ | 15,070 | |||||||||||
The effective tax rates on continuing operations for the years ended December 31, 2025, 2024 and 2023 were 28.1%, 33.7%, and 42.9%, respectively.
The table below reconciles these effective tax rates with the U.S. federal statutory income tax rate as follows:
| Year ended December 31, 2025 | |||||||||||
(in thousands) | Amount | Percent | |||||||||
| Income (loss) before income taxes | $ | 113,472 | |||||||||
| Tax at Federal Statutory Rate | 23,829 | 21.0 | % | ||||||||
| Federal | |||||||||||
| Valuation Allowance | 906 | 0.8 | % | ||||||||
| Other | 761 | 0.7 | % | ||||||||
| Total Federal | $ | 1,667 | 1.5 | % | |||||||
| State and local | |||||||||||
State, Net of Federal Benefit (1) | 6,569 | 5.8 | % | ||||||||
| Valuation Allowance | 96 | 0.1 | % | ||||||||
| Total State and local | $ | 6,665 | 5.9 | % | |||||||
| Foreign | |||||||||||
| Impact of operating in foreign jurisdictions | (1,271) | (1.1) | % | ||||||||
| Total Foreign | $ | (1,271) | (1.1) | % | |||||||
| Effect of Cross-border tax laws | |||||||||||
| Taxes related to basis differences in investment in foreign subsidiaries | 84 | 0.1 | % | ||||||||
| Total Cross-border tax laws | $ | 84 | 0.1 | % | |||||||
| Nontaxable or Non deductible items | |||||||||||
| Stock based compensation windfall | (1,833) | (1.6) | % | ||||||||
| Nondeductible executive compensation | 2,888 | 2.5 | % | ||||||||
| Disallowed loss on sale of entity | 2,478 | 2.2 | % | ||||||||
| Nondeductible Fines and Penalties | 1,509 | 1.3 | % | ||||||||
| Other | 60 | 0.1 | % | ||||||||
| Total nontaxable or non deductible items | $ | 5,102 | 4.5 | % | |||||||
| Other Adjustments | |||||||||||
| Taxes related to basis differences in investment in subsidiaries | (5,054) | (4.5) | % | ||||||||
| Other | 862 | 0.8 | % | ||||||||
| Total other adjustments | $ | (4,192) | (3.7) | % | |||||||
| Income tax (benefit) expense | $ | 31,884 | 28.1 | % | |||||||
(1) | State taxes in Texas contributed to the majority of the tax effect in this category. | ||||
| Year ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Income before income taxes | $ | 75,908 | $ | 35,136 | |||||||
| Tax at Federal Statutory Rate | 15,944 | 7,379 | |||||||||
| State, Net of Federal Benefit | 5,135 | 6,135 | |||||||||
| Non deductible expenses | 2,251 | 925 | |||||||||
| Stock based compensation windfall | (896) | — | |||||||||
| Non deductible loss on the sale of receivables | 2,979 | — | |||||||||
| Valuation Allowance | 546 | 519 | |||||||||
| Impact of operating in foreign jurisdictions | 1,749 | — | |||||||||
| Taxes related to basis differences in investment in subsidiaries | (2,658) | — | |||||||||
| Other | 524 | 112 | |||||||||
| Income tax expense | $ | 25,574 | $ | 15,070 | |||||||
The Company's effective tax rate for the year ended December 31, 2025 differs from the statutory rate primarily due to state tax expense, tax treatment of the sale of Mexico entities, and deferred tax recorded on the Company's investment in Kodiak Services. During the year ended December 31, 2024, the Company's effective tax rate differs from the statutory rate primarily due to state tax expense, a non-deductible loss on the sale of receivables related to the disposition of our Argentina business, and deferred tax recorded on the Company's investment in Kodiak Services.
Income taxes paid (net of refunds received by) jurisdiction are as follows:
Year Ended December 31, | ||||||||
(in thousands) | 2025 | |||||||
| US Federal | $ | 704 | ||||||
| US State and local | ||||||||
| Texas | $ | 3,365 | ||||||
| Other state and local | 594 | |||||||
| Total state and local tax | $ | 3,959 | ||||||
| Foreign | ||||||||
| Argentina | $ | 205 | ||||||
| Netherlands | 685 | |||||||
| Other foreign | 386 | |||||||
| Total foreign tax | $ | 1,276 | ||||||
Total income taxes paid (1) | $ | 5,939 | ||||||
(1) | The amount of income taxes paid during the year for jurisdictions not listed above do not meet the 5.0 percent disaggregation threshold. | ||||
The Company’s deferred tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting.
Significant components of the deferred tax assets and liabilities are as follows:
| Year ended December 31, | |||||||||||
(in thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Net operating losses | $ | 394,727 | $ | 392,585 | |||||||
| Interest expense carryforward | 87,008 | 87,039 | |||||||||
| Deferred compensation | 2,947 | 2,169 | |||||||||
| Other assets | 2,288 | 2,869 | |||||||||
| Total gross deferred tax assets | 486,970 | 484,662 | |||||||||
| Valuation allowance | (1,538) | (745) | |||||||||
| Total deferred tax assets, net of valuation allowance | 485,432 | 483,917 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Investment in subsidiaries | (576,215) | (549,819) | |||||||||
| Property, plant and equipment | (29,769) | (34,157) | |||||||||
| Other liabilities | (2,299) | (3,767) | |||||||||
| Total gross deferred tax liabilities | (608,283) | (587,743) | |||||||||
| Net deferred tax liabilities | $ | (122,851) | $ | (103,826) | |||||||
Deferred Tax Assets and Liabilities
The Company regularly reviews its deferred tax assets, including net operating loss carryovers, for recoverability, and a valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset may not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences are deductible. In assessing the need for a valuation allowance, the Company makes estimates and assumptions regarding projected future taxable income, its ability to carry back operating losses to prior periods, the reversal of deferred tax liabilities and the implementation of tax planning strategies. As the Company reassesses these assumptions in the future, changes in forecasted taxable income may alter this expectation and may result in an increase to the valuation allowance and an increase in the effective tax rate.
The Company’s ability to utilize its net operating loss carryforwards and other tax attributes to reduce future taxable income is subject to potential annual limitations under Internal Revenue Code Section 382 and Section 383 and similar state provisions. These limitations are applicable to the extent certain ownership changes by 5% shareholders and stock issuances by the Company during any three-year period result in a cumulative change of more than 50% in the beneficial ownership of the Company. The Company has assessed the provisions of Section 382 and Section 383 and determined there to be no impact to the expected realization of Company’s federal deferred tax balances. As of December 31, 2025 and 2024 a valuation allowance of $1.5 million and $0.7 million, respectively, has been placed on capital loss carryforward and state tax deferred tax assets that have a limited life and may not be used due to limitations on annual use.
Federal and State Net Operating Losses
As of December 31, 2025, we have gross federal tax net operating loss carryforwards of $1.78 billion and IRC Section 163(j) interest carryforwards of $375 million which have an indefinite useful life. We have gross post-apportionment state net operating loss carryforwards of $417 million which have various useful lives.
Uncertain Tax Benefits
The Company evaluates its tax positions and recognizes only tax benefits that, more likely than not, will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax position is measured at the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement. The Company did not have any uncertain tax benefits as of December 31, 2025 and 2024. As of December 31, 2025 and 2024, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the consolidated statements of operations and comprehensive income (loss).
As of December 31, 2025, tax years 2022 and forward are subject to examination by the tax authorities in the U.S. Tax year 2022 is currently under examination by the Internal Revenue Service.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Mar 7, 2025 | |
| 2023 | Mar 7, 2024 | |
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.