Mayville Engineering Company, Inc. Income Taxes Disclosure
Note 8. Income taxes
Income taxes are included in the Consolidated Statements of Comprehensive Income at December 31, 2025, 2024 and 2023 are summarized as follows:
| December 31, | | December 31, | | December 31, | ||||
2025 | 2024 | 2023 | |||||||
Current income tax expense (benefit) | |||||||||
U.S. Federal | $ | (96) | $ | 1,401 | $ | — | |||
State |
| 314 |
| 1,258 |
| 191 | |||
Total |
| 218 |
| 2,659 |
| 191 | |||
Deferred income tax expense (benefit) |
| |
| |
| | |||
U.S. Federal |
| (5,006) |
| 4,141 |
| 808 | |||
State |
| (1,161) |
| 796 |
| 40 | |||
Total |
| (6,167) |
| 4,937 |
| 848 | |||
Total income tax expense (benefit) | $ | (5,949) | $ | 7,596 | $ | 1,039 | |||
A reconciliation of the statutory federal income tax provision to the income tax provision from continuing operations provided for the twelve months ended December 31, 2025, 2024 and 2023 is as follows:
Twelve Months Ended December 31, | ||||||||||||||||||
2025 | 2024 | 2023 | ||||||||||||||||
% of Pre-Tax | % of Pre-Tax | % of Pre-Tax | ||||||||||||||||
| Amount | | Income | | Amount | | Income | | Amount | | Income | | ||||||
U.S. federal statutory income tax rate | $ | (2,950) | 21.0 | % | $ | 7,048 | 21.0 | % | $ | 1,865 | 21.0 | % | ||||||
State and local income taxes, net of federal income tax effect (1) | (849) | 6.0 | % | 1,843 | 5.5 | % | 162 | 1.8 | % | |||||||||
Effect of changes in tax laws or rates enacted in the current period | — | — | % | — | — | % | 182 | 2.1 | % | |||||||||
Nontaxable or nondeductible items |
|
| ||||||||||||||||
Executive compensation |
| 331 |
| (2.4) | % | 473 |
| 1.4 | % | 90 |
| 1.0 | % | |||||
Stock compensation |
| 674 |
| (4.8) | % | (1,057) |
| (3.2) | % | (162) |
| (1.8) | % | |||||
Other | 69 | (0.5) | % | (56) | (0.2) | % | 250 | 2.8 | % | |||||||||
Tax credits |
|
| ||||||||||||||||
Research and development tax credits |
| (2,444) |
| 17.4 | % | (766) |
| (2.3) | % | (1,800) |
| (20.3) | % | |||||
Changes in unrecognized tax benefits |
| 509 |
| (3.6) | % | 111 |
| 0.3 | % | 478 |
| 5.4 | % | |||||
Other adjustments | ||||||||||||||||||
Automation & technology infrastructure | (1,327) | 9.4 | % | — | — | % | — | — | % | |||||||||
Other |
| 38 |
| (0.3) | % | — |
| — | % | (26) |
| (0.3) | % | |||||
Effective tax rate | $ | (5,949) |
| 42.2 | % | $ | 7,596 |
| 22.6 | % | $ | 1,039 |
| 11.7 | % | |||
| (1) | For the year ended December 31, 2025, the net state income tax benefit includes deferred tax effects from temporary differences primarily in Iowa, Pennsylvania and Wisconsin, offset by current state income tax expense in Pennsylvania and Texas. These jurisdictions collectively represent more than 50% of the net state and local income tax effect. |
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities are presented below:
| December 31, | | December 31, | |||
2025 | 2024 | |||||
Deferred tax assets: | ||||||
Deferred compensation | $ | 2,854 | $ | 2,990 | ||
Inventory reserves | 635 | 575 | ||||
Non-inventory uniform capitalization | 869 | 831 | ||||
Accrued expenses | 624 | 555 | ||||
Right of use lease liabilities | 7,837 | 7,380 | ||||
Credits | 2,327 | — | ||||
Net operating loss | 4,528 | 741 | ||||
Interest expense | 7 | 1,695 | ||||
Other | 379 | 302 | ||||
Total deferred tax assets | 20,060 | 15,069 | ||||
Deferred tax liabilities: | ||||||
Property, plant and equipment | 19,639 | 20,948 | ||||
Intangible assets | 4,322 | 3,980 | ||||
Right of use assets | 7,393 | 6,964 | ||||
Other | 4 | 8 | ||||
Total deferred tax liabilities | 31,358 | 31,900 | ||||
Valuation allowance | — | — | ||||
Net deferred tax liability | $ | (11,298) | $ | (16,831) | ||
The Company has federal net operating loss carryforwards of $3,686 and state net operating carryforwards of $842. The federal net operating loss is indefinite in nature and the state federal net operating loss begins to expire in 2038.
Uncertain Tax Positions
Based on the Company’s evaluation, there is one unrecognized tax benefit requiring recognition in its financial statements as of December 31, 2025. Any interest and penalties related to uncertain tax positions are recorded in income tax expense. The entire balance of unrecognized tax benefits as of December 31, 2025, if recognized, would affect the Company’s effective tax rate. The Company files income tax returns in the United States federal jurisdiction and in various state and local jurisdictions. Federal tax returns for tax years beginning January 1, 2022, and state tax returns beginning January 1, 2021 are open for examination.
Details of Unrecognized Tax Benefits
The following is a reconciliation of beginning and ending amounts of unrecognized tax benefits:
Balance as of December 31, 2022 | $ | 384 | |
Increase from current year tax positions | 1,099 | ||
Increase from prior year tax positions | 217 | ||
Decrease from expiration of statute of limitations | (25) | ||
Balance as of December 31, 2023 | 1,675 | ||
Increase from current year tax positions | 199 | ||
Decrease from prior year tax positions | (958) | ||
Decrease from expiration of statute of limitations | (33) | ||
Balance as of December 31, 2024 | | 883 | |
Increase from current year tax positions | 286 | ||
Increase from prior year tax positions | 223 | ||
Balance as of December 31, 2025 | $ | 1,392 |
Total income taxes paid for the twelve months ended December 31, 2025, 2024 and 2023 are presented below:
| December 31, | | December 31, | | December 31, | ||||
2025 | 2024 | 2023 | |||||||
U.S. Federal | $ | 634 | $ | 261 | $ | 63 | |||
State and local taxes |
|
| |||||||
Illinois | 42 | 42 | — | ||||||
Michigan | — | 104 | — | ||||||
Mississippi | — | 27 | 42 | ||||||
Ohio | (60) | 389 | 145 | ||||||
Pennsylvania | 156 | 92 | (54) | ||||||
South Carolina | — | (123) | 10 | ||||||
Texas | 343 | 75 | 74 | ||||||
Virginia | 10 | 135 | 60 | ||||||
Wisconsin | 238 | (566) | — | ||||||
Other | — | 28 | 11 | ||||||
Total income taxes paid | $ | 1,363 | $ | 464 | $ | 351 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 4, 2026 | Showing above |
| 2024 | Mar 6, 2025 | |
| 2023 | Mar 6, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 2, 2022 | |
| 2020 | Mar 5, 2021 | |
| 2019 | Mar 2, 2020 | |
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.