O REILLY AUTOMOTIVE INC Income Taxes Disclosure
NOTE 17 – INCOME TAXES
The following table identifies components of income from continuing operations before income taxes included in “Income before income taxes” on the accompanying Consolidated Statements of Income for the years ended December 31, 2025, 2024, and 2023 (in thousands):
For the Year Ended | |||||||||
December 31, | |||||||||
2025 | 2024 | 2023 | |||||||
Domestic | $ | 3,259,128 | $ | 3,053,501 | $ | 2,994,856 | |||
Foreign | (18,957) | (8,437) | 9,894 | ||||||
Income before income taxes | $ | 3,240,171 | $ | 3,045,064 | $ | 3,004,750 | |||
Provision for Income Taxes:
The following tables reconcile the amounts included in “Provision for income taxes” on the accompanying Consolidated Statements of Income for the years ended December 31, 2025, 2024, and 2023 (in thousands):
For the Year Ended | |||||||||
December 31, | |||||||||
| 2025 | | 2024 | | 2023 | ||||
Current: | |||||||||
Federal income tax expense | $ | 584,569 | $ | 587,496 | $ | 497,492 | |||
State income tax expense |
| 153,026 |
| 120,209 |
| 109,924 | |||
Foreign income tax expense | 1,911 | 446 | 2,521 | ||||||
Total current | 739,506 | 708,151 | 609,937 | ||||||
Deferred: | |||||||||
Federal income tax (benefit) expense | (20,482) | (43,222) | 41,782 | ||||||
State income tax (benefit) expense | (8,986) | (3,229) | 6,003 | ||||||
Foreign income tax (benefit) expense | (8,076) | (3,316) | 447 | ||||||
Total deferred | (37,544) | (49,767) | 48,232 | ||||||
Net income tax expense | $ | 701,962 | $ | 658,384 | $ | 658,169 | |||
The following table outlines the reconciliation of the “Provision for income taxes” amounts included on the accompanying Consolidated Statements of Income to the amounts computed at the federal statutory rate for the years ended December 31, 2025, 2024, and 2023 (in thousands):
For the Year Ended | ||||||||||||||||||
December 31, | ||||||||||||||||||
| 2025 | | 2024 | | 2023 | |||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||
U.S. federal statutory tax rate | $ | 680,418 | 21.0 | % | $ | 639,534 | 21.0 | % | $ | 630,998 | 21.0 | % | ||||||
104,123 | 3.2 | 95,928 | 3.2 | 96,814 | 3.2 | |||||||||||||
Nontaxable or nondeductible items: | ||||||||||||||||||
Excess tax benefit from share-based compensation | (29,928) | (0.9) | (39,871) | (1.3) | (35,950) | (1.2) | ||||||||||||
Other | 4,640 | 0.1 | 3,575 | 0.1 | 5,247 | 0.2 | ||||||||||||
Tax credits: | ||||||||||||||||||
Federal renewable energy tax credit | (49,519) | (1.5) | (28,345) | (0.9) | (19,627) | (0.6) | ||||||||||||
Other | (9,979) | (0.3) | (11,541) | (0.4) | (14,115) | (0.5) | ||||||||||||
Effect of cross-border tax laws | — | — | — | — | — | — | ||||||||||||
Effect of changes in tax laws or rates enacted in the current period | — | — | — | — | — | — | ||||||||||||
Change in unrecognized tax benefits | 11,696 | 0.4 | (817) | — | (502) | — | ||||||||||||
Changes in valuation allowances | — | — | — | — | — | — | ||||||||||||
Other adjustments | (7,720) | (0.2) | 1,495 | — | (4,905) | (0.2) | ||||||||||||
Foreign tax effects | (1,769) | (0.1) | (1,574) | (0.1) | 209 | — | ||||||||||||
$ | 701,962 | 21.7 | % | $ | 658,384 | 21.6 | % | $ | 658,169 | 21.9 | % | |||||||
(1) | State taxes in California, Illinois, Minnesota, Tennessee, and Texas for the years ended December 31, 2025, 2024, and 2023, made up the majority (greater than 50%) of the tax effect in this category. |
The Company has purchased transferrable federal renewable energy tax credits, and during the year ended December 31, 2025, 2024, and 2023, the Company recognized federal renewable energy tax credits in the amount $453.1 million, $376.4 million, and $336.5 million, respectively. As of December 31, 2025 and 2024, the Company had recorded a liability for the purchase of transferrable federal renewable energy tax credits in the amount of $17.6 million and $346.6 million, respectively, which were included in “Other current liabilities” on the accompanying Consolidated Balance Sheets. Payments for the purchases of transferrable federal renewable energy tax credits are included in income taxes paid.
Income taxes have not been accrued by the Company for the unremitted earnings of its foreign subsidiaries because such earnings are intended to be reinvested in the subsidiaries indefinitely.
Income Taxes Paid:
The following table outlines the components of income taxes paid (net of refunds received) for the years ended December 31, 2025, 2024, and 2023 (in thousands):
December 31, | |||||||||
| 2025 | 2024 | | 2023 | |||||
Federal | $ | 921,798 | $ | 508,917 | $ | 208,310 | |||
State | 140,673 | 126,802 | 100,085 | ||||||
Foreign | 5,053 | 4,707 | 6,665 | ||||||
Total income taxes paid | $ | 1,067,524 | $ | 640,426 | $ | 315,060 | |||
Deferred Income Tax Assets and Liabilities:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and also include the tax effect of carryforwards.
The following table identifies significant components of the Company’s net deferred tax liabilities included in “Deferred income taxes” on the accompanying Consolidated Balance Sheets as of December 31, 2025 and 2024 (in thousands):
December 31, | ||||||
| 2025 | | 2024 | |||
Deferred tax assets: |
| |
| | ||
Allowance for doubtful accounts | $ | 4,488 | $ | 4,161 | ||
Other accruals |
| 195,819 |
| 174,307 | ||
Operating lease liability | 604,407 | 589,140 | ||||
Net operating loss | 14,172 | 5,831 | ||||
Other |
| 19,700 |
| 17,726 | ||
Total deferred tax assets |
| 838,586 |
| 791,165 | ||
Deferred tax liabilities: |
| |
| | ||
Inventories |
| 59,192 |
| 118,712 | ||
Property and equipment |
| 341,413 |
| 298,804 | ||
Operating lease asset | 582,567 | 568,577 | ||||
Other |
| 66,624 |
| 52,671 | ||
Total deferred tax liabilities |
| 1,049,796 |
| 1,038,764 | ||
Net deferred tax liabilities | $ | (211,210) | $ | (247,599) | ||
As of December 31, 2025 and 2024, the Company had foreign net operating loss (“NOL”) carryforwards totaling approximately $45.7 million ($14.2 million tax effected) and $17.9 million ($5.8 million tax effected), respectively. These NOLs will expire, if not utilized, in various years ranging from 2033 to 2035.
Unrecognized Tax Benefits:
The following table summarizes the changes in the gross amount of unrecognized tax benefits, excluding interest and penalties, for the years ended December 31, 2025, 2024, and 2023 (in thousands):
| 2025 | | 2024 | | 2023 | ||||
Unrealized tax benefit, balance at January 1, | $ | 22,524 | $ | 23,943 | $ | 24,798 | |||
Additions based on tax positions related to the current year |
| 3,493 |
| 3,907 |
| 3,932 | |||
Additions based on tax positions related to the prior years | 8,401 | — | — | ||||||
Payments related to items settled with taxing authorities |
| (10,683) |
| (420) |
| — | |||
Reductions due to the lapse of statute of limitations and settlements |
| (3,133) |
| (4,906) |
| (4,787) | |||
Unrealized tax benefit, balance at December 31, | $ | 20,602 | $ | 22,524 | $ | 23,943 | |||
For the year ended December 31, 2025, 2024, and 2023, the Company recorded a reserve in the amount of $19.3 million, $21.0 million and $21.9 million, respectively, for unrecognized tax benefits, including interest and penalties, net of federal benefits, which if recognized would affect the Company’s effective tax rate. The timing related to the ultimate resolution or settlement of these uncertain tax positions cannot be determined. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2025, 2024, and 2023, the Company had accrued approximately $3.9 million, $4.0 million and $3.9 million, respectively, of interest and penalties related to uncertain tax positions before the benefit of the deduction for interest on state and federal returns. During the year ended December 31, 2025, 2024, and 2023, the Company recorded tax expense related to an increase in its liability for interest and penalties in the amounts of $1.8 million, $2.4 million and $2.1 million, respectively.
The Company’s United States federal income tax returns for tax years 2022 and beyond remain subject to examination by the Internal Revenue Service. The IRS is currently conducting an examination of the Company’s consolidated returns for the tax year 2023. The Company’s state income tax returns remain subject to examination by various state authorities for tax years ranging from 2014 through 2024.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 28, 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.