Kinetik Holdings Inc.KNTK
Kinetik Holdings Inc. Income Taxes Disclosure
INCOME TAXES
The total income tax provision consists of the following:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Income from continuing operations before income tax expense | $ | 576,656 | $ | 267,268 | $ | 153,544 | ||||||||||||||
Current income tax expense (benefit): | ||||||||||||||||||||
| Federal | $ | 404 | $ | 1,329 | $ | — | ||||||||||||||
| State | (336) | 2,203 | 492 | |||||||||||||||||
| 68 | 3,532 | 492 | ||||||||||||||||||
Deferred tax expense (benefit): | ||||||||||||||||||||
| Federal | 46,496 | 19,535 | (235,627) | |||||||||||||||||
| State | 4,164 | (32) | 2,227 | |||||||||||||||||
| 50,660 | 19,503 | (233,400) | ||||||||||||||||||
| Total | $ | 50,728 | $ | 23,035 | $ | (232,908) | ||||||||||||||
The following table presents income taxes paid (net of refunds received):
Year Ended December 31, 2025 | ||||||||
| (In thousands) | ||||||||
| Federal | $ | 1,850 | ||||||
| State and local | ||||||||
| Texas | 1,793 | |||||||
| Total | $ | 3,643 | ||||||
The Company adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025. The comparative years ended December 31, 2024 and 2023 are presented under ASC 740’s previous guidance. The difference between the effective income tax rate and the U.S. statutory rate is reconciled below:
Year Ended December 31, 2025 | ||||||||||||||
| Amount | Percent | |||||||||||||
| (In thousands, except percentage) | ||||||||||||||
| $ | 121,098 | 21.00 | % | |||||||||||
Tax attributable to noncontrolling interest | (73,697) | (12.78) | % | |||||||||||
| State and local income tax | 7,352 | 1.27 | % | |||||||||||
| Other | (4,025) | (0.70) | % | |||||||||||
| Effective rate | $ | 50,728 | 8.80 | % | ||||||||||
| Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| U.S. statutory rate | 21.00 | % | 21.00 | % | ||||||||||
Tax attributable to noncontrolling interest | (13.11) | % | (13.51) | % | ||||||||||
| State and local income tax | 2.03 | % | 1.64 | % | ||||||||||
| Valuation allowance | — | % | (160.84) | % | ||||||||||
| Other | (1.30) | % | 0.02 | % | ||||||||||
| Effective rate | 8.62 | % | (151.69) | % | ||||||||||
Texas margin tax, a levy on businesses operating in the State of Texas, accounted for more than 98% of the effect of the state and local income tax category in above tax rate reconciliation for the years ended December 31, 2025, 2024 and 2023.
The net deferred tax assets reflect the tax impact of temporary differences between the asset and liability amounts carried on the balance sheet under U.S. GAAP and amounts utilized for income tax purposes. The net deferred tax assets consist of the following:
| December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (In thousands) | ||||||||||||||
| Deferred tax assets: | ||||||||||||||
| Investment in partnership | $ | 52,678 | $ | 110,856 | ||||||||||
| Net operating losses | 139,373 | 90,435 | ||||||||||||
| Other | 5,651 | 2,705 | ||||||||||||
| Total deferred tax assets | 197,702 | 203,996 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
Property, plant, and equipment | 22,299 | 16,761 | ||||||||||||
Net deferred tax assets | $ | 175,403 | $ | 187,235 | ||||||||||
For state purposes, the Company records deferred tax assets and liabilities based on the differences between the carrying value and tax basis of assets and liabilities recorded on the Consolidated Balance Sheets.
For federal purposes, the Company has deferred tax assets related to (i) its investment in the Partnership and (ii) net operating losses (“NOLs”) with no expiration date. As of December 31, 2025, embedded in the investment in partnership deferred tax asset is approximately $18.2 million related to the carryover of interest expense limitation under IRC Section 382 163(j). The carryover for the interest expense limitation has no expiration. The Company has evaluated all positive and negative evidence to conclude that it is more likely than not that such deferred tax assets will be realized. This determination was based, in part, on the fact that the Company achieved a three-year cumulative position of profitability as of December 31, 2025. It is also based on our projections of future taxable income at current commodity prices and our current cost structure. This positive evidence outweighs negative evidence regarding the realization of the Company’s deferred tax assets. As a result, no valuation allowance was recorded with respect to such deferred tax assets as of December 31, 2025.
IRC Section 382 addresses company ownership changes and specifically limits the utilization of certain deductions and other tax attributes on an annual basis following an ownership change. The Company experienced ownership changes within the meaning of IRC Section 382 that subjected certain of the Company's tax attributes, including NOLs, to an IRC Section 382 limitation. Subsequent ownership changes could further impact the limitation in future years. However, notwithstanding such limitation, we expect to use substantially all of our NOLs to offset our future federal tax liabilities. The timing of such usage will depend upon our future earnings and future tax circumstances.
The Company accounts for income taxes in accordance with FASB ASC 740, which prescribes a minimum threshold a tax position must meet before being recognized in the financial statements. Tax positions generally refer to a position taken in a previously filed income tax return or expected to be included in a tax return to be filed in the future that is reflected in the measurement of current and deferred income tax assets and liabilities.
The Company had no uncertain tax position as of December 31, 2025 and 2024.
The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company has recorded no interest or penalties associated with unrecognized tax benefits. As of December 31, 2025, tax years 2021 through 2025 remain subject to examination by various taxing authorities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Mar 5, 2024 | |
| 2022 | Mar 7, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 1, 2019 | |
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.