MSC INDUSTRIAL DIRECT CO INCMSM
MSC INDUSTRIAL DIRECT CO INC Income Taxes Disclosure
INCOME TAXES
The components of income before provision for income taxes were as follows:
| For the Fiscal Years Ended | |||||||||||||||||
| August 30, 2025 | August 31, 2024 | September 2, 2023 | |||||||||||||||
| Domestic | $ | 271,007 | $ | 355,738 | $ | 453,563 | |||||||||||
| Foreign | (7,429) | (12,989) | 2,593 | ||||||||||||||
| Total | $ | 263,578 | $ | 342,749 | $ | 456,156 | |||||||||||
The provision for income taxes is comprised of the following:
| For the Fiscal Years Ended | |||||||||||||||||
| August 30, 2025 | August 31, 2024 | September 2, 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 51,295 | $ | 57,780 | $ | 81,187 | |||||||||||
| State and local | 13,507 | 17,644 | 21,121 | ||||||||||||||
| Foreign | 2,254 | 1,329 | 1,635 | ||||||||||||||
| 67,056 | 76,753 | 103,943 | |||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (2,893) | 6,909 | 8,164 | ||||||||||||||
| State and local | 683 | 851 | 1,683 | ||||||||||||||
| Foreign | 896 | 2,279 | (741) | ||||||||||||||
| (1,314) | 10,039 | 9,106 | |||||||||||||||
| Total | $ | 65,742 | $ | 86,792 | $ | 113,049 | |||||||||||
Significant components of deferred tax assets and liabilities are as follows:
| August 30, 2025 | August 31, 2024 | ||||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation | $ | (29,035) | $ | (38,391) | |||||||
| Right-of-use assets | (13,057) | (12,740) | |||||||||
| Goodwill | (135,960) | (123,677) | |||||||||
| Intangible asset amortization | (4,769) | (2,153) | |||||||||
| (182,821) | (176,961) | ||||||||||
| Deferred tax assets: | |||||||||||
| Accounts receivable | 5,189 | 4,930 | |||||||||
| Lease liability | 13,291 | 13,461 | |||||||||
| Inventories | 9,637 | 8,769 | |||||||||
| Self-insurance liability | 1,814 | 2,026 | |||||||||
| Deferred compensation | 800 | 171 | |||||||||
| Stock-based compensation | 3,527 | 4,847 | |||||||||
| Other accrued expenses/reserves | 17,519 | 10,269 | |||||||||
| Foreign net operating loss carryforwards | 9,080 | 5,545 | |||||||||
| Foreign tax credit | 2,034 | 2,034 | |||||||||
| Less: Valuation allowance | (13,979) | (10,314) | |||||||||
| 48,912 | 41,738 | ||||||||||
| Net Deferred Tax Liabilities | $ | (133,909) | $ | (135,223) | |||||||
Reconciliation of the U.S. federal income tax rate to the Company’s effective income tax rate is as follows:
| For the Fiscal Years Ended | |||||||||||||||||
| August 30, 2025 | August 31, 2024 | September 2, 2023 | |||||||||||||||
| U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State income taxes, net of federal benefit | 4.2 | 4.6 | 4.3 | ||||||||||||||
| U.S. federal tax credits | (1.3) | (1.6) | — | ||||||||||||||
| Valuation allowance | 1.4 | 2.7 | — | ||||||||||||||
| Other, net | (0.4) | (1.4) | (0.5) | ||||||||||||||
| Effective income tax rate | 24.9 | % | 25.3 | % | 24.8 | % | |||||||||||
The aggregate changes in the balance of gross unrecognized tax benefits during fiscal years 2025 and 2024 were as follows:
| August 30, 2025 | August 31, 2024 | ||||||||||
| Beginning Balance | $ | 5,768 | $ | 7,768 | |||||||
| Additions for tax positions relating to current year | 62 | 210 | |||||||||
| Additions for tax positions relating to prior years | 67 | — | |||||||||
| Reductions for tax positions relating to prior years | (648) | — | |||||||||
| Lapse of statute of limitations | (1,546) | (2,210) | |||||||||
| Ending Balance | $ | 3,703 | $ | 5,768 | |||||||
Included in the balance of gross unrecognized tax benefits at August 30, 2025 is $1,017 related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next 12 months. This amount
represents a potential decrease in gross unrecognized tax benefits comprised primarily of items related to expiring statutes of limitations in state and foreign jurisdictions.
The Company recognizes interest expense and penalties in the provision for income taxes. The provision for income taxes for fiscal years 2025, 2024 and 2023 included interest and penalties of $79, $4 and $153, respectively. The Company had accrued $919 and $1,431 for interest and penalties as of August 30, 2025 and August 31, 2024, respectively.
During fiscal year 2023, the Company received funds related to Employee Retention Credit (“ERC”) claims previously submitted. As there is no authoritative guidance under accounting principles generally accepted in the United States of America on accounting for government assistance to for-profit business entities, the Company accounts for the ERC by analogy to International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance. Of the funds received in fiscal year 2023, the Company recorded $6,566 to Other income (expense) in the Consolidated Statement of Income for the fiscal year ended September 2, 2023, as the probability threshold had been met for these funds. As of August 30, 2025, the Company determined the probability threshold had not been met for $5,129 of the funds received in fiscal year 2023, and, as such, that portion of the funds remained in Accrued expenses and other current liabilities in the Consolidated Balance Sheet as of such date. This amount will be recognized in the Consolidated Statement of Income when the probability threshold has been met, which the Company has determined to be the earlier of a completed audit or the lapse of the relevant statute of limitations.
The Company is routinely examined by federal and state tax authorities. The Company is subject to examination by the Internal Revenue Service from fiscal year 2022 to present. With limited exceptions, the Company is no longer subject to state income tax examinations prior to fiscal year 2022. The Company is also subject to examinations in various foreign jurisdictions. The statute of limitations varies by jurisdiction.
On July 4, 2025, the One Big Beautiful Bill Act (OBBA) was passed in the United States, which contained a broad range of tax reform. This tax legislation included changes and restructuring of tax policies that could impact rates, deductions, credits, and other tax related provisions. The Company did not experience a material impact to its tax rates, expense or obligations from the legislation during fiscal year 2025. The Company continues to evaluate the impact of these legislative changes on its consolidated financial statements.
As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, the Company establishes a valuation allowance. During the fiscal year ended August 30, 2025, the Company’s valuation allowance increased by approximately $3,665. The Company has income tax net operating loss carryforwards related to its international operations of approximately $32,377, of which $11,888 has an indefinite carryforward period and $20,139 expires in 2034 and $350 expires in 2044.
For the fiscal year ended August 30, 2025, the Company reinvested $5,133 of undistributed earnings of its foreign subsidiaries and may be subject to additional foreign withholding taxes and U.S. state income taxes if it reverses its indefinite reinvestment assertion on these foreign earnings in the future. All other outside basis differences not related to earnings were impractical to account for at this period of time and are currently considered as being permanent in duration.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Oct 23, 2025 | Showing above |
| 2024 | Oct 24, 2024 | |
| 2023 | Oct 25, 2023 | |
| 2022 | Oct 20, 2022 | |
| 2021 | Oct 20, 2021 | |
| 2020 | Oct 27, 2020 | |
| 2019 | Oct 24, 2019 | |
| 2018 | Oct 30, 2018 | |
| 2017 | Oct 31, 2017 | |
| 2016 | Nov 1, 2016 | |
| 2015 | Oct 28, 2015 | |
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.