NOTE 14—INCOME TAXES

The Company is subject to income taxes in the U.S. federal jurisdiction and various state and local jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.

The following table details the components of the Company’s income tax provision for the years ended December 31, 2024, 2023 and 2022:


	Year Ended December 31,
	2024		2023		2022
Current expense:
Federal	$	1,041	$	1,006	$	321
State		597		536		1,109
	$	1,638	$	1,542	$	1,430

Deferred expense:
Federal	$	635	$	1,869	$	6,446
State		170		7		172
	$	805	$	1,876	$	6,618

Income tax expense	$	2,443	$	3,418	$	8,048

The following table illustrates the deferred tax assets and liabilities as of December 31, 2024 and December 31, 2023:


	December 31, 2024			December 31, 2023
Deferred tax assets:
Net operating loss carry forwards	$	4,100		$	4,107
Federal tax credits		12,274			13,042
Book reserves		1,824			1,397
Intangible asset amortization		5,297			5,799
Stock compensation		1,657			1,370
Impairment		387			306
Lease liabilities		2,815			1,009
VIE Loss on investment		565			—
Total deferred tax assets		28,919			27,030
Less: valuation analysis		(4,542	)		(3,950	)
Net deferred tax assets	$	24,377		$	23,080

Deferred tax liabilities:
Property depreciation	$	(20,319	)	$	(20,048	)
Right of use assets		(2,786	)		(956	)
Total deferred tax liabilities		(23,105	)		(21,004	)
Net deferred tax assets		1,272			2,076

As of December 31, 2024, the Company has $12,985 of federal net operating losses carryforwards that are not expected to be realizable due to restrictive loss limitation rules. As such a full valuation allowance has been recorded to offset the value of the related carryforward. The Company has $3,596 of state net operating loss carryforwards. A partial valuation allowance has been recorded to recognize that some attributes may expire before utilization.

As of December 31, 2024, the Company has $12,274 of federal tax credit carryforwards that expire 20 years from the date earned. The credits available as of December 31, 2024 will begin to expire in 2039.

The following table details the components of the Company’s income tax provision for the years ended December 31, 2024, 2023 and 2022:


	Year Ended December 31,
	2024			2023			2022
Tax provision at federal statutory rate of 21%	$	2,557		$	3,857		$	9,081
State tax provision		615			430			998
Permanent differences		144			114			15
Stock compensation		1,298			(175	)		(24	)
162(m) compensation limitation		184			1,530			—
Valuation allowance		27			—			50
Production tax credit		(2,382	)		(2,324	)		(2,052	)
Return to provision		—			—			(20	)
Other		—			(14	)		—
Total income tax expense	$	2,443		$	3,418		$	8,048

As of December 31, 2024, the tax years 2021, 2022 and 2023 are open for examination by the IRS.

Valuation Allowance

The Company annually reviews its deferred tax assets for the possibility they will not be realized. A valuation allowance will be recorded if it is determined more than a 50% likelihood exists that a deferred tax asset will not be realized. A $4,542 valuation allowance exists as of December 31, 2024, which represents the Company’s deferred tax assets that are not expected to be realized. $565 of the valuation on December 31, 2024 represents MNK's investment deferred tax assets that the Company does not expect to realize. Refer to Note 17, Related Party Transactions for further information regarding the consolidation of MNK on December 31, 2024. The balance as of December 31, 2023, wherein there was no consolidated VIE balance, was $3,950.

Uncertain Tax Position

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in both federal and state jurisdictions. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of each situation’s technical merits.

At this point in time the Company is not aware of any tax positions taken that would give rise to recording an uncertain tax position. As such, the Company has not recorded any liability for unrecognized tax benefits as of December 31, 2024 or 2023. The Company records interest and penalties as a component of income tax expense. However, as there are no unrecognized tax benefits for the years ended December 31, 2024 and December 31, 2023, the Company has no penalties or interest accrued at December 31, 2024 and 2023, respectively.

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.

Montauk Renewables, Inc. Income Taxes Disclosure

About Income Taxes Disclosures

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