Morningstar, Inc.MORN
Morningstar, Inc. Income Taxes Disclosure
Income Taxes
Income Tax Expense and Effective Tax Rate
The following table shows our income tax expense and our effective tax rate for the years ended December 31, 2025, 2024, and 2023:
| (in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Income before income taxes and equity in investments of unconsolidated entities | $ | 499.0 | $ | 491.3 | $ | 181.5 | ||||||||||||||
| Equity in investments of unconsolidated entities | (3.3) | (17.4) | (7.4) | |||||||||||||||||
| Income before income taxes | $ | 495.7 | $ | 473.9 | $ | 174.1 | ||||||||||||||
| Income tax expense | $ | 121.5 | $ | 104.0 | $ | 33.0 | ||||||||||||||
| Effective tax rate | 24.5 | % | 21.9 | % | 19.0 | % | ||||||||||||||
Our effective tax rate in 2025 was 24.5%, an increase of 2.6 percentage points, compared with 21.9% in the prior year. The company's 2024 effective tax rate was favorably impacted by the book gain in excess of taxable gain on the sale of its Commodity and Energy Data business and was offset by deferred taxes that we recorded with respect to unremitted foreign earnings.
Our effective tax rate in 2024 was 21.9%, an increase of 2.9 percentage points, compared with 19.0% in 2023. The company's 2024 effective tax rate was favorably impacted by the book gain in excess of taxable gain on the sale of its Commodity and Energy Data business and was offset by deferred taxes that we recorded with respect to unremitted foreign earnings. Further, our 2023 effective tax rate was lower primarily due to the recognition of tax benefits related to a retroactive tax election.
The Organization for Economic Co-operation and Development (OECD) has proposed a global minimum tax of 15% of reported profits (Pillar Two) that has been agreed upon in principle by over 140 countries. Since the proposal, many countries incorporated Pillar Two model rule concepts into their domestic laws. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar Two slightly different than the model rules and on different timelines. On January 5, 2026, the OECD announced changes to the model rules to include the “side by side” arrangement, which contains simplification measures as well as an exemption for US parented companies from certain aspects of the Pillar Two regime. The updated model rules will need to be enacted into local legislation to be effective. Pillar Two did not have a material impact to our consolidated financial statements as of December 31, 2025. We are continuing to monitor developments and administrative guidance in addition to evaluating the potential impact of Pillar Two on our consolidated financial statements for future periods.
On July 4, 2025, the One Big Beautiful Bill Act (the OBBB) was enacted in the United States. The OBBB contains several changes impacting corporate taxpayers, including modifications to the capitalization of research and development expenses, changes to calculations for the limitation on deductions for interest expense, and the reestablishment of accelerated depreciation (full expensing) on fixed assets. The OBBB also includes adjustments to the calculation of certain international tax framework provisions, which were initially established by the Tax Cuts and Jobs Act of 2017. The OBBB has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The OBBB did not have a material impact on our consolidated financial statements as of December 31, 2025.
In the fourth quarter of 2024, we determined $142.0 million in earnings of certain of our foreign subsidiaries to be no longer permanently reinvested. During 2025, we completed a one-time repatriation of these earnings totaling $150.0 million ($141.4 million, net of applicable withholding taxes). We generally consider the remainder of the accumulated undistributed earnings of most of our foreign subsidiaries to be indefinitely reinvested, and it is not practicable to determine the amount of the unrecognized deferred tax liability related to these earnings. The amount of indefinitely reinvested earnings is based on our estimates and assumptions. This amount is subject to change in the normal course of business as we evaluate operational cash flows, working capital and regulatory requirements, investment needs, and other factors. Accordingly, we regularly update our earnings and profits analysis to reflect these developments.
We have elected to prospectively adopt the guidance in ASU No. 2023-09. Refer to Note 19 for more information regarding the adoption of ASU No. 2023-09. For the year ended December 31, 2025, the following table reconciles our income tax expense at the US federal income tax rate to income tax expense as recorded:
| 2025 | ||||||||||||||
| (in millions, except percentages) | Amount | % | ||||||||||||
| Income tax expense at US federal rate | $ | 104.1 | 21.0 | % | ||||||||||
State and local income tax, net of federal income tax effect(1) | 20.0 | 4.0 | % | |||||||||||
| Foreign tax effects | ||||||||||||||
| Canada | ||||||||||||||
| State and local | 6.0 | 1.2 | % | |||||||||||
| Other | (2.2) | (0.4) | % | |||||||||||
| Other foreign jurisdictions | 5.1 | 1.0 | % | |||||||||||
| Effects of changes in tax laws or rates enacted in the current period | — | — | % | |||||||||||
| Effect of cross-border tax laws | ||||||||||||||
| Foreign-derived intangible income deduction | (17.4) | (3.5) | % | |||||||||||
| US tax on foreign branches, net of foreign tax credits | (7.5) | (1.5) | % | |||||||||||
| Other | 2.3 | 0.5 | % | |||||||||||
| Tax credits | (4.1) | (0.8) | % | |||||||||||
| Changes in valuation allowances | ||||||||||||||
| Valuation allowance on foreign tax credits | 8.1 | 1.6 | % | |||||||||||
| Other | 0.6 | 0.1 | % | |||||||||||
| Nontaxable or nondeductible items | 5.2 | 1.0 | % | |||||||||||
| Changes in unrecognized tax benefits | 1.3 | 0.3 | % | |||||||||||
| Total income tax expense | $ | 121.5 | 24.5 | % | ||||||||||
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(1) State taxes in California, Illinois, New York City, and New York State make up the majority of the tax effect in this category.
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU No. 2023-09, the following table reconciles our income tax expense at the US federal income tax rate to income tax expense as recorded:
___________________________________________________________________________________________
| 2024 | 2023 | |||||||||||||||||||||||||
| (in millions, except percentages) | Amount | % | Amount | % | ||||||||||||||||||||||
| Income tax expense at US federal rate | $ | 99.5 | 21.0 | % | $ | 36.6 | 21.0 | % | ||||||||||||||||||
| State income taxes, net of federal income tax benefit | 18.4 | 3.9 | % | 7.3 | 4.2 | % | ||||||||||||||||||||
| Stock-based compensation activity | (2.3) | (0.5) | % | 1.6 | 0.9 | % | ||||||||||||||||||||
| Equity in net income (loss) of unconsolidated subsidiaries (including holding gains upon acquisition) | 3.4 | 0.7 | % | 1.1 | 0.6 | % | ||||||||||||||||||||
| Gain on Sale of Business | (9.7) | (2.0) | % | — | — | % | ||||||||||||||||||||
| Net change in valuation allowance related to deferred tax assets, including net operating losses | 0.5 | 0.1 | % | (3.2) | (1.8) | % | ||||||||||||||||||||
| Difference between US federal statutory and foreign tax rates and other impacts of foreign operations | 0.4 | 0.1 | % | 1.7 | 1.0 | % | ||||||||||||||||||||
| Change in unrecognized tax benefits | 2.9 | 0.6 | % | (9.8) | (5.6) | % | ||||||||||||||||||||
| Credits and incentives | (5.9) | (1.2) | % | (4.1) | (2.4) | % | ||||||||||||||||||||
Foreign tax provisions (GILTI, FDII, and BEAT)(2) | (16.1) | (3.4) | % | (0.2) | (0.1) | % | ||||||||||||||||||||
| Change in deferred taxes with respect to unremitted foreign earnings | 6.8 | 1.4 | % | — | — | % | ||||||||||||||||||||
| Non-deductible expenses and other, net | 6.1 | 1.2 | % | 2.0 | 1.2 | % | ||||||||||||||||||||
| Total income tax expense | $ | 104.0 | 21.9 | % | $ | 33.0 | 19.0 | % | ||||||||||||||||||
(2) The Tax Reform Act established the Global Intangible Low-Tax Income (GILTI) provision, which taxes US allocated expenses and certain income from foreign operations; the Foreign-Derived Intangible Income (FDII) provision, which allows a deduction against certain types of US taxable income resulting in a lower effective US tax rate on such income; and the Base Erosion Anti-Abuse Tax (BEAT), which is a minimum tax based on cross-border service payments by US entities.
The following table shows the components of our income tax expense:
| Year ended December 31, | ||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current tax expense: | ||||||||||||||||||||
| US | ||||||||||||||||||||
| Federal | $ | 86.7 | $ | 74.3 | $ | 27.7 | ||||||||||||||
| State | 31.7 | 30.0 | 13.4 | |||||||||||||||||
| Non-US | 45.4 | 34.3 | 24.3 | |||||||||||||||||
| Current tax expense | 163.8 | 138.6 | 65.4 | |||||||||||||||||
| Deferred tax expense (benefit): | ||||||||||||||||||||
| US | ||||||||||||||||||||
| Federal | (29.1) | (17.6) | (15.6) | |||||||||||||||||
| State | (6.3) | (6.5) | (4.2) | |||||||||||||||||
| Non-US | (6.9) | (10.5) | (12.6) | |||||||||||||||||
| Deferred tax expense, net | (42.3) | (34.6) | (32.4) | |||||||||||||||||
| Income tax expense | $ | 121.5 | $ | 104.0 | $ | 33.0 | ||||||||||||||
The following table provides our income before income taxes and equity in investments of unconsolidated entities, generated by our US and non-US operations:
| Year ended December 31, | ||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| US | $ | 357.5 | $ | 400.8 | $ | 101.4 | ||||||||||||||
| Non-US | 141.5 | 90.5 | 80.1 | |||||||||||||||||
| Income before income taxes and equity in investments of unconsolidated entities | $ | 499.0 | $ | 491.3 | $ | 181.5 | ||||||||||||||
Income Tax Payments
The following table shows cash paid for income taxes, net of refunds, for the year ended December 31, 2025:
| (in millions) | 2025 | |||||||
| US federal income taxes | $ | 77.9 | ||||||
| US state and local income taxes: | ||||||||
| New York state | 8.8 | |||||||
| Other | 25.4 | |||||||
| Total state income taxes | 34.2 | |||||||
| Foreign income taxes: | ||||||||
| Canada - Federal | 16.0 | |||||||
| Canada - Ontario | 8.7 | |||||||
| India | 13.2 | |||||||
| Other | 21.8 | |||||||
| Total foreign income taxes | 59.7 | |||||||
| Total cash paid for income taxes | $ | 171.8 | ||||||
Jurisdictions that are equal or greater than 5% of the total cash paid for income taxes, net of refunds, for the year ended December 31, 2025 are disclosed in the table above.
Deferred Tax Assets and Liabilities
We recognize deferred income taxes for the temporary differences between the carrying amount of assets and liabilities for financial statement purposes and their tax basis. The tax effects of the temporary differences that give rise to the deferred income tax assets and liabilities are as follows:
| As of December 31, | ||||||||||||||
| (in millions) | 2025 | 2024 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Stock-based compensation | $ | 9.4 | $ | 7.8 | ||||||||||
| Accrued liabilities | 34.2 | 33.5 | ||||||||||||
| Deferred revenue | 5.3 | 6.7 | ||||||||||||
| Net operating loss carryforwards - US | 0.3 | — | ||||||||||||
| Net operating loss carryforwards - Non-US | 21.7 | 18.9 | ||||||||||||
| Capitalized expenses | 128.0 | 102.7 | ||||||||||||
| Allowance for doubtful accounts | 2.6 | 2.4 | ||||||||||||
| Lease liabilities | 37.5 | 35.9 | ||||||||||||
| Investments in unconsolidated entities | 2.1 | — | ||||||||||||
| Capital loss and other carryforwards | 20.3 | 12.9 | ||||||||||||
| Other | 0.1 | — | ||||||||||||
| Total deferred tax assets | 261.5 | 220.8 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Acquired intangible assets | (74.6) | (68.5) | ||||||||||||
| Property, equipment, and capitalized software | (34.8) | (39.6) | ||||||||||||
| Lease right-of-use assets | (32.7) | (31.4) | ||||||||||||
| Unrealized exchange gains, net | (1.3) | (1.7) | ||||||||||||
| Prepaid expenses | (18.5) | (19.3) | ||||||||||||
| Investments in unconsolidated entities | — | (11.4) | ||||||||||||
| Withholding tax - foreign dividends | — | (7.1) | ||||||||||||
| Total deferred tax liabilities | (161.9) | (179.0) | ||||||||||||
| Net deferred tax asset before valuation allowance | 99.6 | 41.8 | ||||||||||||
| Valuation allowance | (48.1) | (26.2) | ||||||||||||
| Deferred tax asset (liability) | $ | 51.5 | $ | 15.6 | ||||||||||
The net increase in our valuation allowance, from $26.2 million at December 31, 2024 to $48.1 million at December 31, 2025, is primarily attributable to current year movements in net operating losses, capital losses, and foreign tax credit carryforwards for which amounts are able to be realized or for which full realization is uncertain. Included in the valuation allowance of $48.1 million are $18.2 million of foreign tax credits that will expire in 2031 through 2035. In assessing the need for a valuation allowance, many factors are considered, including the specific taxing jurisdiction, the carryforward period, income tax strategies, and forecasted earnings for the entities in each jurisdiction. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The deferred tax assets and liabilities are presented in our Consolidated Balance Sheets as follows:
| As of December 31, | ||||||||||||||
| (in millions) | 2025 | 2024 | ||||||||||||
| Deferred tax asset, net | $ | 78.7 | $ | 43.2 | ||||||||||
| Deferred tax liability, net | (27.2) | (27.6) | ||||||||||||
| Deferred tax asset (liability), net | $ | 51.5 | $ | 15.6 | ||||||||||
The following table summarizes our US net operating loss (NOL) carryforwards:
| As of December 31, | ||||||||||||||
| (in millions) | 2025 | 2024 | ||||||||||||
| US federal NOLs subject to expiration dates | $ | — | $ | — | ||||||||||
| US federal NOLs with no expiration dates | 1.5 | — | ||||||||||||
| Total | $ | 1.5 | $ | — | ||||||||||
The net increase in the US federal NOL carryforwards as of December 31, 2025 compared with 2024 reflects NOL carryforwards from an acquisition in 2025. We have not recorded a valuation allowance against US federal NOLs of $1.5 million because we expect the benefit of the US federal NOLs to be fully utilized.
The following table summarizes our NOL carryforwards for our non-US operations:
| As of December 31, | ||||||||||||||
| (in millions) | 2025 | 2024 | ||||||||||||
| Non-US NOLs subject to expiration dates from 2027 through 2035 | $ | 19.7 | $ | 22.8 | ||||||||||
| Non-US NOLs with no expiration date | 66.4 | 51.9 | ||||||||||||
| Total | $ | 86.1 | $ | 74.7 | ||||||||||
| Non-US NOLs not subject to valuation allowances | $ | 10.1 | $ | 15.3 | ||||||||||
The increase in non-US NOL carryforwards as of December 31, 2025 compared with the same period in 2024 primarily reflects NOLs from 2025 acquisitions offset by NOLs utilized in 2025.
In assessing the realizability of our deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We recorded a valuation allowance against approximately $76.0 million of the non-US NOLs, reflecting the likelihood that the benefit of these NOLs will not be realized.
Unrecognized Tax Benefits
We conduct business globally and, as a result, we file income tax returns in US federal, state, local, and foreign jurisdictions. In the normal course of business, we are subject to examination by tax authorities throughout the world. The open tax years for our US Federal tax returns and most state tax returns include the years 2020 to the present.
As of December 31, 2025, our Consolidated Balance Sheet included a liability of $13.1 million for unrecognized tax benefits. As of December 31, 2024, our Consolidated Balance Sheet included a liability of $11.8 million for unrecognized tax benefits. These amounts include interest and penalties, less any associated tax benefits.
The table below reconciles the beginning and ending amount of the gross unrecognized tax benefits as follows:
| (in millions) | 2025 | 2024 | ||||||||||||
| Gross unrecognized tax benefits - beginning of the year | $ | 11.1 | $ | 13.0 | ||||||||||
| Increases as a result of tax positions taken during a prior-year period | 0.8 | 0.9 | ||||||||||||
| Decreases as a result of tax positions taken during a prior-year period | — | (0.1) | ||||||||||||
| Increases as a result of tax positions taken during the current period | 2.3 | 2.1 | ||||||||||||
| Decreases relating to settlements with tax authorities | — | (4.7) | ||||||||||||
| Decreases as a result of lapse of the applicable statute of limitations | (1.9) | (0.1) | ||||||||||||
| Gross unrecognized tax benefits - end of the year | $ | 12.3 | $ | 11.1 | ||||||||||
In 2025, we recorded a net increase of $3.1 million of gross unrecognized tax benefits before settlements and lapses of statutes of limitations, of which $3.1 million increased our income tax expense by $2.8 million.
In addition, we reduced our gross unrecognized tax benefits by $1.9 million for settlements and lapses of statutes of limitations, of which $1.9 million decreased our income tax expense by $1.8 million.
As of December 31, 2025, we had $12.3 million of gross unrecognized tax benefits, which if recognized, would decrease our income tax expense by $11.9 million and reduce our effective income tax rate.
We record interest and penalties related to uncertain tax positions as part of our income tax expense. The following table summarizes our gross liability for interest and penalties:
| As of December 31, | ||||||||||||||
| (in millions) | 2025 | 2024 | ||||||||||||
| Liabilities for interest and penalties | $ | 1.7 | $ | 1.3 | ||||||||||
We recorded the increase in the liabilities for penalties and interest, net of any tax benefits, to income tax expense in our Consolidated Statements of Income in 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 26, 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.