MultiSensor AI Holdings, Inc. Income Taxes Disclosure
Note 16 — Income taxes
The components of the provision (benefit) for income taxes for the years ended December 31, 2024, and 2023 were as follows:
| 2024 |
| 2023 | |||
Current: | ||||||
Federal | $ | (446) | $ | 272 | ||
State |
| (80) |
| 7 | ||
Total current |
| (526) |
| 279 | ||
Deferred: |
|
| ||||
Federal |
| 61 |
| (71) | ||
State |
| — |
| — | ||
Total deferred |
| 61 |
| (71) | ||
Total income tax provision | $ | (465) | $ | 208 | ||
| 2024 |
| 2023 | |||
Deferred Tax Assets: | ||||||
Accruals, Others | $ | 46 | $ | 107 | ||
Reserves |
| 15 |
| 52 | ||
UNICAP & Inventoriable Costs |
| 272 |
| 175 | ||
Inventory Impairment | 1,612 | 1,134 | ||||
Leases | 31 | 31 | ||||
Interest Carryforward | 30 | 31 | ||||
Financial Instruments |
| 367 |
| 1,392 | ||
Intangibles |
| 265 |
| 982 | ||
Other |
| 255 |
| 29 | ||
Net Operating Losses | 7,109 | 3,849 | ||||
Valuation Allowance | (9,350) | (7,011) | ||||
Total deferred tax assets | $ | 652 |
| 771 | ||
Deferred Tax Liabilities: | ||||||
Prepaid Expense | $ | (62) |
| (162) | ||
Book Tax Depreciation |
| (640) |
| (597) | ||
Other | — | — | ||||
Leases |
| (30) |
| (30) | ||
Total deferred tax liabilities |
| (732) |
| (789) | ||
Deferred tax (liabilities) assets, net | $ | (80) | $ | (18) | ||
The total provision (benefit) for income taxes for the years ended December 31, 2024, and 2023 varies from the federal statutory rate as a result of the following:
| 2024 |
| 2023 |
| |||
Loss before income tax expense | $ | (21,960) | $ | (22,060) | |||
Statutory tax rate |
| 21 | % |
| 21 | % | |
Income tax expense (benefit) |
| (4,612) |
| (4,633) | |||
Increase (decrease) resulting from: |
|
| |||||
Permanent Differences |
| 1,681 |
| 2,300 | |||
State Income Tax, net of FBOS |
| — |
| (177) | |||
Movement in receivables | (619) | — | |||||
Valuation Allowance | 2,338 | 3,428 | |||||
Deferred Adjustment |
| 665 |
| — | |||
Other, net |
| 82 |
| (710) | |||
Income tax expense (benefit) |
| (465) |
| 208 | |||
Current income tax expense (benefit) |
| (526) |
| 279 | |||
Deferred income tax (benefit) |
| 61 |
| (71) | |||
Total | $ | (465) | $ | 208 | |||
Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. As a result of the Company’s evaluation of both the positive and negative evidence, the Company determined it does not believe it is more likely than not that its deferred tax assets will be utilized in the foreseeable future and has recorded a valuation allowance. For the year ended December 31, 2024, the Company recognized an income tax benefit primarily driven by federal tax refunds. For the year ended December 31, 2023, the Company recognized income tax expense because of a true-up on the federal tax payable and interest on late payment of the federal tax payable.
During 2024, the Company determined that it experienced an ownership change as defined under Internal Revenue Code Section 382. The result of the ownership change is subjecting tax attributes to an annual limitation which includes the utilization of the Company's net operating losses. As a result of the merger with Legacy SMAP, the Company acquired a federal net operating loss tax attribute. These net operating losses are fully limited under section 382. The Company will continue to monitor ownership changes throughout future periods.
Changes in the valuation allowance are as follows:
| 2024 |
| 2023 | |||
Balance, beginning of the year | $ | 7,011 | $ | 3,583 | ||
Additions to valuation allowance | 2,339 |
| 3,428 | |||
Balance, end of the year | 9,350 |
| 7,011 | |||
The Company intends to continue maintaining a valuation allowance on its deferred tax assets until there is sufficient evidence to support reversal of all or some portion of these allowances.
The Company reported U.S. net operating loss carryforwards of $30,797 and state net operating loss carryforward of $39,677. For federal income tax purposes the $30,797 of net operating losses will not expire. For state income tax purposes, the Company has $36,298 of net operating losses which are subject to expiration. The carryforward life for the net operating losses is dependent on the rules for each jurisdiction and therefore the losses are subject to expiration with the earliest year being 2037 and the latest year being 2044. The Company experienced an ownership change on July 1, 2024, and as a result both federal and state net operating losses before that date are subject to 382 limitations. In addition, the Company also had U.S. interest limitation carryforwards of $133 with an indefinite expiration date.
There were no unrecognized tax benefits or activity for the years ended December 31, 2024 and 2023.
The Company recognizes interest and penalties related to unrecognized tax benefits within the provision for income taxes in the consolidated statement of operation and as of December 31, 2024, and 2023. We file income tax returns in the U.S. as well as in various states and the Company notes that the earliest year open to examination is 2020. The Company is not currently under examination by any major tax jurisdiction.
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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.