MGP INGREDIENTS INCMGPI
MGP INGREDIENTS INC Income Taxes Disclosure
INCOME TAXES
Income (loss) before income taxes for the year ended December 31, 2025 was a loss of $100,350, of which $2,376 relates to foreign income before income taxes and $102,726 relates to domestic loss before income taxes.
Income tax expense is composed of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 8,469 | $ | 28,234 | $ | 32,296 | |||||||||||
| State | 2,127 | 5,269 | 5,926 | ||||||||||||||
| Foreign | 291 | 131 | 330 | ||||||||||||||
| 10,887 | 33,634 | 38,552 | |||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (1,734) | 625 | (4,100) | ||||||||||||||
| State | (1,841) | (238) | 120 | ||||||||||||||
| Foreign | 170 | (44) | 44 | ||||||||||||||
| (3,405) | 343 | (3,936) | |||||||||||||||
| Total | $ | 7,482 | $ | 33,977 | $ | 34,616 | |||||||||||
Income tax expense also included tax expense allocated to comprehensive income for 2025, 2024, and 2023 of $15, $16, and $172, respectively (see the Consolidated Statements of Comprehensive Income (Loss)).
A reconciliation of income tax expense and effective tax rate at the normal statutory federal rate to income tax expense and effective tax rate included in the accompanying Consolidated Statements of Income (Loss) for 2025 is as follows:
| Year Ended December 31, 2025 | |||||||||||
| Amount | Percent | ||||||||||
| “Expected” provision at federal statutory rate | $ | (21,074) | 21.0 | % | |||||||
State and local income taxes, net of federal income tax effect(a) | 226 | (0.2) | |||||||||
Foreign tax effects | 462 | (0.5) | |||||||||
| Tax credits | (592) | 0.6 | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Nondeductible goodwill impairment | 27,745 | (27.7) | |||||||||
| Share-based compensation | 957 | (1.0) | |||||||||
Other Nontaxable or nondeductible items | (69) | 0.1 | |||||||||
| Changes in unrecognized tax benefits | (11) | — | |||||||||
| Other adjustments | (162) | 0.2 | |||||||||
| Effective tax rate | $ | 7,482 | (7.5) | % | |||||||
(a) State taxes in Indiana, Kansas, and Texas comprise the majority of this category.
A reconciliation of income tax expense at the normal statutory federal rate to income tax expense included in the accompanying Consolidated Statements of Income (Loss) for 2024 and 2023 is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| “Expected” provision at federal statutory rate | $ | 14,373 | $ | 29,895 | |||||||
| State income taxes, net | 5,865 | 6,545 | |||||||||
| Foreign income taxes | 131 | 330 | |||||||||
| Change in valuation allowance | (965) | 1,135 | |||||||||
Nondeductible goodwill impairment | 15,489 | — | |||||||||
| Share-based compensation | (362) | (288) | |||||||||
| Federal and state tax credits | (2,078) | (1,685) | |||||||||
| Other | 1,524 | (1,316) | |||||||||
| Income tax expense | $ | 33,977 | $ | 34,616 | |||||||
| Effective tax rate | 49.6 | % | 24.4 | % | |||||||
The tax effects of temporary differences giving rise to deferred income taxes shown on the Consolidated Balance Sheets are as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred income tax assets: | |||||||||||
| Share-based compensation | $ | 2,819 | $ | 3,511 | |||||||
U.S. state and foreign tax credit carryforwards | 4,453 | 3,426 | |||||||||
Mexico and U.S. state loss carryforwards | 1,303 | 3,165 | |||||||||
| Inventories | 2,696 | 2,726 | |||||||||
| Operating lease liabilities | 3,659 | 4,120 | |||||||||
| Deferred compensation | 572 | 935 | |||||||||
| Section 174 timing difference | — | 1,554 | |||||||||
Contingent Consideration | 12,466 | 5,939 | |||||||||
| Other | 2,082 | 2,462 | |||||||||
| Gross deferred income tax assets | 30,050 | 27,838 | |||||||||
| Less: valuation allowance | (418) | (2,243) | |||||||||
| Net deferred income tax assets | 29,632 | 25,595 | |||||||||
| Deferred income tax liabilities: | |||||||||||
| Property, plant and equipment | (25,882) | (23,813) | |||||||||
| Intangibles | (47,266) | (50,518) | |||||||||
| Inventory | (841) | (1,165) | |||||||||
| Operating lease right-of-use assets | (3,544) | (3,978) | |||||||||
| Convertible Senior Note | (9,724) | (7,146) | |||||||||
| Other | (2,384) | (2,405) | |||||||||
| Gross deferred income tax liabilities | (89,641) | (89,025) | |||||||||
| Net deferred income tax liability | $ | (60,009) | $ | (63,430) | |||||||
A schedule of the change in valuation allowance is as follows:
Balance at December 31, 2023 | $ | 3,208 | |||
| Decrease | (965) | ||||
Balance at December 31, 2024 | 2,243 | ||||
| Decrease | (1,825) | ||||
Balance at December 31, 2025 | $ | 418 | |||
As of December 31, 2025, the Company’s total valuation allowance of $418, related to net operating loss in U.S. states in which it is not “more likely than not” to create enough taxable income to fully utilize the carryforwards before expiration of the carryforward periods and certain foreign tax credit carryforwards. As of December 31, 2024, the Company’s total valuation allowance of $2,243, related to net operating loss in U.S. states and foreign countries in which it is not “more likely than not” to create enough taxable income to fully utilize the carryforwards before expiration of the carryforward periods.
As of December 31, 2025 and 2024, the Company had $19,064 and $18,422 in gross U.S. state net operating loss carryforwards, respectively. Due to varying U.S. state carryforward periods, the state net operating loss carryforwards will primarily expire in varying years between calendar years 2026 and 2045. As of December 31, 2025 and 2024, the Company had gross U.S. state tax credit carryforwards of $5,636 and $4,336, respectively. U.S. state credits, if not used to offset income tax expense in their respective jurisdictions, will expire in varying years between 2026 and 2041.
The Company treats accrued interest and penalties related to tax liabilities, if any, as a component of income tax expense. During 2025, 2024, and 2023, the Company’s activity in accrued interest and penalties was not significant.
The following is a reconciliation of the total amount of unrecognized tax benefits (excluding interest and penalties) for 2025, 2024, and 2023:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Beginning of year balance | $ | 189 | $ | 424 | $ | 156 | |||||||||||
| Additions based on prior year tax positions | — | — | 83 | ||||||||||||||
| Additions based on current year tax positions | 5 | — | 245 | ||||||||||||||
| Reduction for prior year tax positions | (16) | (235) | (60) | ||||||||||||||
| End of year balance | $ | 178 | $ | 189 | $ | 424 | |||||||||||
For each period presented, substantially all of the amount of unrecognized benefits (excluding interest and penalties) would impact the effective tax rate, if recognized. The Company reasonably expects that the amount of unrecognized tax benefit will not change significantly over the next 12 months.
Income taxes paid for the year ended December 31, 2025 is composed of the following:
| Year Ended December 31, | |||||
| 2025 | |||||
U.S. Federal | $ | 8,200 | |||
U.S. State | 2,359 | ||||
| Foreign | 100 | ||||
| Total income tax paid | $ | 10,659 | |||
Income taxes paid to the state of Indiana was $1,025, which was the only individual jurisdiction that exceeded 5 percent of total income taxes paid, net of refunds. Foreign income taxes paid did not exceed 5% of total income taxes paid, net of refunds.
The Company is not under any U.S. federal, state or foreign income tax audits. For U.S. federal tax purposes, all tax years after 2021 remain open to examination. Amounts paid for income tax in foreign jurisdictions are not material to the consolidated financial statements. In addition, the Company is subject to examination for its state tax returns for years 2021, and forward, with the exception of certain net operating losses and credit carryforwards originating in years prior to 2021 that remain subject to adjustment.
On July 4, 2025, the One Big Beautiful Bill Act (“OB3 Act”) was signed into law. Among other changes, the OB3 Act includes key provisions that make 100% bonus depreciation permanent, allow for the expensing of domestic research costs, and modify the business interest expense limitation calculation. The applicable changes were incorporated into the Company’s income tax provision for the year ended December 31, 2025, resulting in a cash tax benefit to the Company. The OB3 Act had an immaterial impact to the Company’s effective tax rate for the year ended December 31, 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 8, 2017 | |
| 2015 | Mar 10, 2016 | |
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.