NACCO INDUSTRIES INCNC
NACCO INDUSTRIES INC Income Taxes Disclosure
Income Taxes
We provide for income taxes and the related accounts under the asset and liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect during the year in which the basis differences reverse. Valuation allowances are established when management determines it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
The components of Income before income tax benefit and the Income tax benefit for the years ended December 31 are as follows:
| 2025 | 2024 | ||||||||||
| Income before income tax benefit | |||||||||||
| Domestic | $ | 13,159 | $ | 33,637 | |||||||
| Foreign | (15) | 9 | |||||||||
| $ | 13,144 | $ | 33,646 | ||||||||
| Income tax benefit | |||||||||||
| Current income tax provision (benefit): | |||||||||||
| Federal | $ | (5,392) | $ | (2,520) | |||||||
| State | 907 | 906 | |||||||||
| Foreign | (3) | 2 | |||||||||
| Total current | (4,488) | (1,612) | |||||||||
| Deferred income tax provision (benefit): | |||||||||||
| Federal | 436 | 1,373 | |||||||||
| State | (378) | 144 | |||||||||
| Total deferred | 58 | 1,517 | |||||||||
| $ | (4,430) | $ | (95) | ||||||||
Cash paid for income taxes (net of refunds) were as follows:
| 2025 | |||||
U.S. Federal | $ | — | |||
U.S. State | 615 | ||||
Total net income tax payments | $ | 615 | |||
We made income tax payments of $5.2 million and received income tax refunds of $1.0 million during 2024.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before the provision for income taxes. A reconciliation of the federal statutory and effective income tax rate, applying ASU 2023-09 prospectively, for the year ended December 31 is as follows:
| 2025 | ||||||||
Amount | Percent | |||||||
Income before income tax benefit | $ | 13,144 | ||||||
Statutory taxes | $ | 2,760 | 21.0 | % | ||||
State and local income taxes, net of federal income tax effect (a) | 339 | 2.6 | % | |||||
Tax credits: | ||||||||
| Research and development credit | (604) | (4.6) | % | |||||
Nondeductible compensation | 856 | 6.5 | % | |||||
Nondeductible meals | 137 | 1.0 | % | |||||
Changes in unrecognized tax benefits | (57) | (0.4) | % | |||||
Other reconciling items: | ||||||||
Percentage depletion | (5,398) | (41.1) | % | |||||
Deferred tax adjustments | (2,429) | (18.5) | % | |||||
Other, net | (34) | (0.3) | % | |||||
Income tax benefit at the effective income tax rate | $ | (4,430) | (33.7) | % | ||||
(a) During the year ended December 31, 2025, state taxes in Louisiana, North Dakota, Mississippi and Pennsylvania made up the majority of the tax effect in this category.
The reconciliation from the statutory federal income tax rate to our effective income tax rate, applying ASC 740 prior to the adoption of ASU 2023-09, is as follows:
| 2024 | ||||||||
Income before income tax benefit | $ | 33,646 | ||||||
Statutory taxes at 21.0% | $ | 7,066 | ||||||
State and local income taxes | 556 | |||||||
| Non-deductible expenses | 927 | |||||||
| Percentage depletion | (4,683) | |||||||
| R&D and other federal credits | (796) | |||||||
| Settlements and uncertain tax positions | (2,273) | |||||||
| Other, net | (892) | |||||||
Income tax benefit | $ | (95) | ||||||
| Effective income tax rate | (0.3) | % | ||||||
We recorded an income tax benefit of $4.4 million for the year ended December 31, 2025 on income before income tax of $13.1 million, or (33.7)%, compared to an income tax benefit of $0.1 million on income before income tax of $33.6 million, or (0.3)%, for the year ended December 31, 2024. The years ended December 31, 2025 and 2024 included $1.9 million and $4.0 million of discrete tax benefits, primarily for deferred tax adjustments and the reversal of uncertain tax provisions, respectively. Excluding the respective $1.9 million and $4.0 million of discrete tax benefits, the effective income tax rate was (19.5)% and 11.5% in 2025 and 2024, respectively.
The change in the effective income tax rate for 2025 compared to 2024, excluding the impact of discrete items, is primarily due to an increase in losses at entities that do not benefit from percentage depletion. Losses generated by these entities generate tax deductions at the statutory rate. This shift in the mix of pre-tax income resulted in a benefit tax rate in 2025. In addition, the benefit from percentage depletion is not directly related to the amount of pre-tax income recorded in a period. Accordingly, in periods where income or loss before income tax is relatively small, the proportional effect of the benefit from percentage depletion on the effective tax rate may be significant. When income tax expense is recorded, the benefit from percentage depletion decreases the effective income tax rate, while the effect is to increase the effective income tax rate when a benefit for income taxes is recorded.
A detailed summary of the total deferred tax assets and liabilities in our Consolidated Balance Sheets resulting from differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes is as follows:
| December 31 | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Lease liabilities | $ | 770 | $ | 1,252 | |||||||
| Tax carryforwards | 22,769 | 12,371 | |||||||||
| Inventories | 3,278 | 6,029 | |||||||||
| Accrued liabilities | 8,738 | 9,430 | |||||||||
| Employee benefits | 3,471 | 3,630 | |||||||||
| Land valuation adjustment | 6,467 | 6,489 | |||||||||
| Partnership investment - development costs | 6,497 | 14,819 | |||||||||
| Other | 8,769 | 7,866 | |||||||||
| Total deferred tax assets | 60,759 | 61,886 | |||||||||
| Less: Valuation allowance | 12,289 | 11,672 | |||||||||
| 48,470 | 50,214 | ||||||||||
| Deferred tax liabilities | |||||||||||
| Lease right-of-use assets | 719 | 1,209 | |||||||||
| Depreciation and depletion | 28,217 | 23,731 | |||||||||
| Accrued pension benefits | 5,533 | 10,633 | |||||||||
| Total deferred tax liabilities | 34,469 | 35,573 | |||||||||
Net deferred asset | $ | 14,001 | $ | 14,641 | |||||||
The following table summarizes the tax carryforwards and associated carryforward periods and related valuation allowances where we have determined that realization is uncertain:
| December 31, 2025 | |||||||||||||||||
Net deferred tax asset | Valuation allowance | Carryforwards expire during: | |||||||||||||||
| State net operating loss | $ | 19,327 | $ | 15,168 | 2026-2045 | ||||||||||||
Federal net operating loss | 7,050 | — | Indefinite | ||||||||||||||
Research credit | 391 | — | 2044-2045 | ||||||||||||||
Total | $ | 26,768 | $ | 15,168 | |||||||||||||
| December 31, 2024 | |||||||||||||||||
Net deferred tax asset | Valuation allowance | Carryforwards expire during: | |||||||||||||||
| State net operating loss | $ | 15,584 | $ | 14,610 | 2025-2044 | ||||||||||||
We have a valuation allowance for certain state and foreign deferred tax assets. Based upon the review of historical earnings and the relevant expiration of carryforwards, including utilization limitations in the various state taxing jurisdictions, we believe the valuation allowances are appropriate and do not expect to release valuation allowances within the next twelve months that would have a significant effect on our financial position or results of operations.
Since 2021, we have participated in a voluntary program with the IRS called Compliance Assurance Process (CAP). The objective of CAP is to contemporaneously work with the IRS to achieve federal tax compliance and resolve all or most issues prior to the filing of the tax return. In general, we operate in taxing jurisdictions that provide a statute of limitations period ranging from three to five years for the taxing authorities to review the applicable tax filings. Our tax returns are under routine examination by various taxing authorities. We have not been informed of any material assessment for which an accrual has not been previously provided and would vigorously contest any material assessment. Management believes any potential adjustment would not materially affect our financial condition or results of operations.
The following is a reconciliation of our total gross unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the financial statements for the years ended December 31, 2025 and 2024. Approximately $0.6 million of the gross unrecognized tax benefits as of December 31, 2025 and 2024 relate to permanent items that, if recognized, would impact the effective income tax rate. This amount differs from the gross unrecognized tax benefits presented in the table below due to (1) the deferred tax asset which would be available if the position were not sustained upon audit and (2) the decrease in U.S. federal income taxes which would occur upon the recognition of the state tax benefits included herein.
| 2025 | 2024 | ||||||||||
| Balance at January 1 | $ | 752 | $ | 6,148 | |||||||
| Decreases based on lapse of applicable statute of limitations | (61) | (5,396) | |||||||||
| Balance at December 31 | $ | 691 | $ | 752 | |||||||
We record interest and penalties on uncertain tax positions as a component of the income tax provision. We recognized a net benefit of less than $0.1 million in interest and penalties related to uncertain tax positions during 2025 and 2024. The total amount of interest and penalties accrued was less than $0.1 million and $0.2 million as of December 31, 2025 and 2024, respectively.
We expect the amount of unrecognized tax benefits will change within the next 12 months; however, the change is not expected to have a significant effect on our financial position, results of operations or cash flows.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 4, 2026 | Showing above |
| 2024 | Mar 5, 2025 | |
| 2023 | Mar 6, 2024 | |
| 2022 | Mar 15, 2023 | |
| 2021 | Mar 2, 2022 | |
| 2020 | Mar 3, 2021 | |
| 2019 | Mar 4, 2020 | |
| 2018 | Mar 6, 2019 | |
| 2017 | Mar 7, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Mar 2, 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.