LITHIA MOTORS INCLAD
LITHIA MOTORS INC Income Taxes Disclosure
INCOME TAXES
Income Before Income Taxes
Income from continuing operations before income tax expense:
| Year Ended December 31, | |||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| United States of America | $ | 1,087.0 | $ | 1,001.3 | $ | 1,273.2 | |||||||||||
| Foreign | 21.4 | 70.0 | 89.1 | ||||||||||||||
| Total income from continuing operations before income tax expense | $ | 1,108.4 | $ | 1,071.3 | $ | 1,362.3 | |||||||||||
Income Tax Provision
The income tax provision was as follows:
| Year Ended December 31, | |||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| U.S. Federal | $ | 114.6 | $ | 164.2 | $ | 207.5 | |||||||||||
| U.S. State and local | 53.2 | 48.7 | 71.7 | ||||||||||||||
| Foreign | 20.8 | 1.8 | 7.4 | ||||||||||||||
| Total current provision for income taxes | 188.6 | 214.7 | 286.6 | ||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. Federal | 77.5 | 12.4 | 43.7 | ||||||||||||||
| U.S. State and local | 11.1 | 12.5 | 8.1 | ||||||||||||||
| Foreign | 5.3 | 15.4 | 12.2 | ||||||||||||||
| Total deferred provision for income taxes | 93.9 | 40.3 | 64.0 | ||||||||||||||
| Total provision for income taxes | $ | 282.5 | $ | 255.0 | $ | 350.6 | |||||||||||
At December 31, 2025, we had income taxes receivable of $23.5 million included as a component of Other current assets in our Consolidated Balance Sheets. At December 31, 2024, we had income taxes receivable of $10.4 million included as a component of other current assets in our Consolidated Balance Sheet.
The reconciliation between amounts computed using the federal income tax rate of 21% and our income tax provision is shown in the following tabulation:
| Year Ended December 31, | ||||||||||||||||||||||||||
| ($ in millions) | 2025 | % | 2024 | % | 2023 | % | ||||||||||||||||||||
| Federal tax provision at statutory rate | $ | 232.9 | 21.0 | % | $ | 225.1 | 21.0 | % | $ | 286.0 | 21.0 | % | ||||||||||||||
| Domestic U.S. Federal | ||||||||||||||||||||||||||
| Tax credits | ||||||||||||||||||||||||||
| Discount on transferable credits | (5.3) | (0.5) | % | (13.1) | (1.2) | % | — | — | % | |||||||||||||||||
| Other | (7.2) | (0.6) | % | (9.0) | (0.8) | % | (5.3) | (0.4) | % | |||||||||||||||||
| Non-taxable and non-deductible items | 6.8 | 0.6 | % | 5.6 | 0.5 | % | 9.1 | 0.7 | % | |||||||||||||||||
| Effect of cross-border tax laws | (2.6) | (0.2) | % | 6.5 | 0.6 | % | 1.4 | 0.1 | % | |||||||||||||||||
| Change in valuation allowance | (14.1) | (1.3) | % | (9.9) | (0.9) | % | (3.6) | (0.3) | % | |||||||||||||||||
| Change in unrecognized tax benefits | (0.2) | — | % | (0.1) | — | % | 0.3 | — | % | |||||||||||||||||
| Other | (0.2) | — | % | (0.4) | — | % | (1.4) | (0.1) | % | |||||||||||||||||
| Domestic U.S. state and local taxes, net of federal income tax benefit | 50.7 | 4.6 | % | 48.6 | 4.5 | % | 63.0 | 4.6 | % | |||||||||||||||||
| Foreign tax effects | ||||||||||||||||||||||||||
| Canada | 4.5 | 0.4 | % | 0.2 | — | % | $0.9 | 0.1 | % | |||||||||||||||||
| United Kingdom | 17.2 | 1.5 | % | 1.5 | 0.1 | % | $0.2 | — | % | |||||||||||||||||
| Income tax provision | $ | 282.5 | 25.5 | % | $ | 255.0 | 23.8 | % | $ | 350.6 | 25.7 | % | ||||||||||||||
The foreign tax effects include operations in Canada and the United Kingdom. For 2023, 2024, and 2025, state and local income taxes in California, New Jersey, and Oregon comprise the majority of the Domestic U.S. state and local taxes, net of federal income tax benefit category.
Deferred Taxes
Individually significant components of the deferred tax assets and (liabilities) are presented below:
| December 31, | |||||||||||
| ($ in millions) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Deferred revenue and cancellation reserves | $ | 152.4 | $ | 113.6 | |||||||
| Allowances and accruals | 91.4 | 81.8 | |||||||||
| Lease liability | 197.2 | 173.5 | |||||||||
| Credits and other | 29.7 | 23.2 | |||||||||
| Net operating losses | 49.3 | 45.7 | |||||||||
| Capital loss | 15.9 | 30.5 | |||||||||
| Valuation allowance | (59.2) | (70.6) | |||||||||
| Total deferred tax assets | 476.7 | 397.7 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Inventories | (51.9) | (53.2) | |||||||||
| Goodwill | (411.0) | (317.8) | |||||||||
| Property and equipment, principally due to differences in depreciation | (271.9) | (188.4) | |||||||||
| Right of use asset | (184.4) | (165.7) | |||||||||
| Prepaid expenses and other | (73.8) | (69.7) | |||||||||
| Total deferred tax liabilities | (993.0) | (794.8) | |||||||||
| Total | $ | (516.3) | $ | (397.1) | |||||||
As of December 31, 2025, we had net operating loss (NOL) carryforwards and capital loss carryforwards totaling approximately $65.2 million. Of these carryforwards, approximately $43.3 million will expire, if not utilized, in various years through 2045. The remaining carryforwards have no expiration.
We consider whether our deferred tax assets are more likely than not to be realized. This evaluation considers all sources of future taxable income, including prior carryback capacity, the expected reversal of temporary differences, projected operating income, and available tax-planning strategies. If conditions change and recovery becomes more likely than not, we reverse the valuation allowance, with the impact recognized in the income statement.
As of December 31, 2025, we had a $59.2 million valuation allowance on deferred tax assets associated primarily with state net operating loss carryforwards and foreign capital loss carryforwards.
We have asserted that the earnings of our Canadian subsidiaries will be indefinitely reinvested to ensure there is sufficient working capital to expand our operations in Canada. The amount of unremitted earnings and the related deferred tax liability are not material. We do not intend to indefinitely reinvest the earnings of our U.K. subsidiaries, however, no deferred tax liability has been recorded for foreign withholding taxes due to a 0% treaty rate on dividends.
Income Taxes Paid
Tax payments, net of refunds, was as follows:
| Year Ended December 31, | |||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Jurisdiction | |||||||||||||||||
| U.S. Federal | $ | 136.0 | $ | 202.9 | $ | 137.8 | |||||||||||
| U.S. State and local | |||||||||||||||||
| Oregon | 13.4 | 9.7 | 16.0 | ||||||||||||||
| California | 14.6 | 6.7 | 17.7 | ||||||||||||||
New Jersey | 8.1 | 4.4 | 10.1 | ||||||||||||||
| Other | 27.9 | 15.6 | 32.6 | ||||||||||||||
| Foreign | 1.9 | 3.4 | 7.9 | ||||||||||||||
| Total income taxes paid | $ | 201.9 | $ | 242.7 | $ | 222.1 | |||||||||||
Unrecognized Tax Benefits
The following is a reconciliation of our unrecognized tax benefits for December 31, 2025, 2024, and 2023:
| ($ in millions) | |||||
Balance, December 31, 2022 | $ | 0.6 | |||
| Increase related to tax positions taken - current year | 0.3 | ||||
Balance, December 31, 2023 | 0.9 | ||||
| Increase related to tax positions taken - current year | — | ||||
Balance, December 31, 2024 | 0.9 | ||||
| Decrease related to tax positions taken - prior year | (0.3) | ||||
Balance, December 31, 2025 | $ | 0.6 | |||
Open tax years at December 31, 2025 included the following:
| U.S. Federal | 2022 - 2025 | ||||
| U.S. States (29) | 2021 - 2025 | ||||
| Canada | 2022 - 2025 | ||||
| United Kingdom | 2022 - 2025 | ||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 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.