MESA LABORATORIES INC /CO/ Income Taxes Disclosure

Note 12. Income Taxes

 

Provision for Income Taxes

 

Earnings (loss) before income taxes was as follows:

 

		Year Ended March 31,
		2026				2025				2024
Domestic		$	6,856			$	12,615			$	(233,853	)
Foreign			5,158				(6,654	)			(41,795	)
Total earnings (loss) before income taxes		$	12,014			$	5,961			$	(275,648	)

 

The components of our provision for income taxes were as follows:

 

		Year Ended March 31,
		2026				2025				2024
Current tax provision:
U.S. Federal		$	753			$	3,994			$	3,002
U.S. State			502				1,212				1,678
Foreign			5,328				2,790				2,330
Total current tax expense			6,583				7,996				7,010
Deferred tax provision:
U.S. Federal			1,450				63				(20,387	)
U.S. State			443				13				(1,853	)
Foreign			(3,174	)			(137	)			(6,172	)
Total deferred tax (benefit)			(1,281	)			(61	)			(28,412	)
Total income tax expense (benefit)		$	5,302			$	7,935			$	(21,402	)

 

The reconciliation of the U.S. federal statutory rate of 21% to the effective income tax rate for the year ended March 31, 2026, following the adoption of ASU 2023-09 is as follows:

 

		Year Ended March 31,
		2026
		Amount				%
Earnings Before Income Taxes		$	12,014
U.S. Federal Statutory Tax Rate			2,523				21.0	%
State and Local Income Taxes, Net of Federal Income Tax Effect(1)			746				6.2	%
Foreign Tax Effects:
Germany:
Federal statutory rate difference			(492	)			(4.1%	)
Surcharge/trade tax charge			2,022				16.8	%
Deferred tax rate change			(304	)			(2.5%	)
Changes in valuation allowance			(171	)			(1.4%	)
Other			65				0.5	%
Other foreign jurisdictions			10				0.1	%
Effect of Changes in Tax Laws or Rates Enacted in the Current Period			-				-	%
Effect of Cross-Border Tax Laws:
GILTI			375				3.1	%
Subpart F Income			259				2.2	%
Other			48				0.4	%
Changes in valuation allowance			(2,259	)			(18.8%	)
Tax Credits			(580	)			(4.8%	)
Nontaxable or Nondeductible Items:
Compensation adjustments			2,808				23.4	%
Changes in Unrecognized Tax Benefits			-				-	%
Other Adjustments:
Deferred charges on intercompany profit			139				1.2	%
Other			113				0.9	%
Effective Tax Rate		$	5,302				44.1	%

 

(1)

State income taxes in Montana, Maryland and Minnesota comprised the majority (greater than 50%) of the tax effect in this category.

 

The reconciliation of the U.S. federal statutory rate of 21% to the effective income tax rate for the years ended March 31, 2025 and 2024, prior to the adoption of ASU 2023-09 is as follows:

 

		Year Ended March 31,
		2025								2024
		Amount				%				Amount				%
Earnings (loss) before income taxes		$	5,961							$	(275,648	)
Federal income taxes at statutory rates			1,251				21.0	%			(57,886	)			21.0	%
State income taxes, net of federal benefit			317				5.3	%			(2,508	)			0.9	%
Compensation adjustments			2,283				38.3	%			2,738				(1.0%	)
Research and development credit			(1,054	)			(17.7%	)			(1,093	)			0.4	%
Return to provision adjustment			516				8.7	%			(182	)			0.1	%
Subpart F, GILTI, & FDII			(484	)			(8.1%	)			(412	)			0.1	%
Foreign rate differential			2,047				34.3	%			(566	)			0.2	%
Permanent difference			47				0.8	%			479				(0.2%	)
Goodwill impairment			-				-	%			32,594				(11.8%	)
Valuation allowance			3,019				50.6	%			5,398				(2.0%	)
Other			(7	)			(0.1%	)			36				-	%
Total income tax expense (benefit)		$	7,935				133.1	%		$	(21,402	)			7.8	%
Effective income tax rate			133.12	%							7.76	%

 

Cash Paid for Income Taxes

 

We made income tax payments, net of refunds received, during the year ended March 31, 2026 as follows:

 

Year ended March 31, 2026
Federal		$	-
State:
Montana			97
U.S. States, Other			633
Foreign:
Germany			430
France			477
China			233
Income taxes paid, net of amounts refunded		$	1,870

 

For fiscal year 2026, Montana, Germany, France and China cash taxes paid equaled or exceeded 5% of total income taxes paid. No other jurisdiction comprised 5% or more of total income taxes paid.  

 

Deferred Tax Assets and Liabilities

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets (liabilities) were as follows:

 

		2026				2025
Deferred tax assets:
Capitalized research expenditures		$	4,041			$	8,148
Income tax credits			2,618				2,774
Allowances and reserves			3,317				2,687
Stock compensation deductible differences			1,890				1,632
Operating lease liabilities			1,972				1,860
Inventories			1,058				1,153
Net operating loss carryforwards			3,660				3,219
Other temporary differences			615				265
Net deferred tax assets, gross			19,171				21,738
Valuation allowance			(6,408	)			(8,999	)
Net deferred tax assets, net			12,763				12,739
Deferred tax liabilities:
Operating lease right-of-use assets			(2,051	)			(1,843	)
Goodwill and intangible assets			(25,275	)			(26,854	)
Property, plant and equipment			(2,268	)			(2,273	)
Other temporary differences			(1,753	)			(579	)
Total deferred tax liabilities			(31,347	)			(31,549	)
Net deferred tax assets/(liabilities)			(18,584	)			(18,810	)

 

Valuation Allowance

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. In evaluating the need for a valuation allowance, management takes into account various factors, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. Based on this evaluation, we have concluded that a valuation allowance is necessary on our U.S. and certain German operations and we do not expect to fully realize our deferred tax assets as of March 31, 2026.

 

The following table summarizes the changes in our valuation allowance for deferred tax assets: 

 

		Year Ended March 31,
		2026				2025
Beginning balance		$	8,999			$	5,975
(Reductions) Additions charged to income tax expense and other accounts			(2,648	)			3,657
Deductions from reserves			-				(637	)
Cumulative translation adjustment			57				4
Ending balance		$	6,408			$	8,999

 

Net Operating Loss Credit and Carryforwards

 

As of March 31, 2026, we had U.S. and Foreign net operating loss (“NOL”) carryforwards consisting of the following: 

 

		March 31, 2026				Expiration Date
Pre-2018 federal NOL carryforwards		$	-				N/A
Post-2018 federal NOL carryforwards			-			Indefinite
State NOL carryforwards			9,690			March 31, 2035
Foreign NOL carryforwards			13,846			Indefinite

 

As of March 31, 2026, we had U.S. tax credit carryforwards consisting of the following:

 

		March 31, 2026				Expiration Date
Federal research tax credit carryforwards		$	-				N/A
State research tax credits carryforwards			3,295			March 31, 2039
Federal foreign tax credit carryforwards			15			March 31, 2037

 

Undistributed earnings in foreign subsidiaries

 

For the year ended March 31, 2026, provisions have not been made for income taxes on undistributed earnings that were deemed permanently reinvested in foreign subsidiaries at March 31, 2026. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when we no longer plan to permanently reinvest these undistributed earnings.

 

Uncertain Tax Positions

 

As of March 31, 2026, we had no gross unrecognized tax benefits. We recognize any interest and penalties accrued on uncertain income tax positions in other expense and general and administrative expense, respectively. Interest and penalties included in other long-term liabilities on our accompanying Consolidated Balance Sheets were $0 for each of the years ended March 31, 2026, 2025 and 2024. We do not expect a material change in unrecognized tax benefits or interest in the next 12 months.

 

Income Tax Examinations

We file income tax returns in the U.S. various states and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world. The tax year ended March 31, 2024 for Mesa Laboratories, Inc. is under review by the U.S. Internal Revenue Service.

 

The following tax years remain subject to examination:

 

Significant Jurisdictions			Open Years
U.S. Federal			2022-2024
Montana			2022-2024
U.S. States, Other			2021-2024
Foreign			2019-2024