Otter Tail CorpOTTR
Otter Tail Corp Income Taxes Disclosure
Income Taxes
Income before income taxes for the years ended December 31, 2025, 2024 and 2023 consists entirely of domestic earnings.
The provision for income taxes charged to income for the years ended December 31, 2025, 2024 and 2023 consisted of the following:
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current | |||||||||||||||||
| Federal Income Taxes | $ | 9,107 | $ | 36,238 | $ | 41,253 | |||||||||||
| State Income Taxes | 4,702 | 6,533 | 15,126 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal Income Taxes | 20,802 | 13,078 | 9,832 | ||||||||||||||
| State Income Taxes | 12,385 | 9,979 | 3,676 | ||||||||||||||
| Tax Credits | |||||||||||||||||
| North Dakota Wind Tax Credit Amortization, Net of Federal Tax | (586) | (586) | (586) | ||||||||||||||
| Investment Tax Credit Amortization | (26) | (12) | (3) | ||||||||||||||
| Total Income Tax Expense | $ | 46,384 | $ | 65,230 | $ | 69,298 | |||||||||||
The reconciliation of the statutory federal income tax rate to our effective tax rate for each of the years ended December 31, 2025, 2024 and 2023 is as follows:
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| Income Taxes at Federal Statutory Rate | $ | 67,678 | 21.0 | % | $ | 77,047 | 21.0 | % | $ | 76,332 | 21.0 | % | ||||||||||||||
| Increases (Decreases) in Tax from: | ||||||||||||||||||||||||||
State and Local Taxes on Income, Net of Federal Tax1 | 12,696 | 3.9 | 13,081 | 3.6 | 12,933 | 3.6 | ||||||||||||||||||||
| Tax Credits: | ||||||||||||||||||||||||||
| Energy Related Tax Credits | (29,773) | (9.2) | (20,118) | (5.5) | (17,397) | (4.8) | ||||||||||||||||||||
| Other | (646) | (0.2) | (1,116) | (0.3) | (1,290) | (0.4) | ||||||||||||||||||||
| Nontaxable or Nondeductible Items | (125) | — | 276 | 0.1 | (587) | (0.2) | ||||||||||||||||||||
| Changes in Unrecognized Tax Benefits | (26) | — | (364) | (0.1) | 566 | 0.2 | ||||||||||||||||||||
| Impact of Regulation | (3,420) | (1.1) | (3,576) | (1.0) | (1,259) | (0.3) | ||||||||||||||||||||
| Income Taxes at Effective Tax Rate | $ | 46,384 | 14.4 | % | $ | 65,230 | 17.8 | % | $ | 69,298 | 19.1 | % | ||||||||||||||
1 State taxes in Minnesota made up the majority (greater than 50%) of the tax effect in this category for each year presented. | ||||||||||||||||||||||||||
In the above table, the impact of regulation consists of excess deferred income taxes arising from the federal tax rate reduction in the 2017 Tax Cuts and Jobs Act and the impact of allowance for equity funds used during construction at OTP.
Energy-related tax credits, which consist of PTCs and ITCs, North Dakota wind tax credits, which are included with state taxes in the above table, and excess deferred income taxes are returned to customers as a reduction of the rates they are charged and result in a reduction of operating revenues.
Income tax payments by jurisdiction, net of refunds, were composed of the following for the years ended December 31, 2025, 2024 and 2023:
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Federal | $ | 8,061 | $ | 47,838 | $ | 38,918 | |||||||||||
| State: | |||||||||||||||||
| Minnesota | 2,600 | 8,500 | 5,700 | ||||||||||||||
| All Other | 432 | 1,276 | 1,666 | ||||||||||||||
| Total Income Taxes Paid | $ | 11,093 | $ | 57,614 | $ | 46,284 | |||||||||||
Deferred tax assets and liabilities were composed of the following on December 31, 2025 and 2024:
| (in thousands) | 2025 | 2024 | |||||||||
| Deferred Tax Assets | |||||||||||
| Employee Benefits | $ | 37,731 | $ | 37,456 | |||||||
| Regulatory Liabilities | 47,121 | 52,664 | |||||||||
| Tax Credit Carryforwards | 15,884 | 18,268 | |||||||||
| Cost of Removal | 34,697 | 35,374 | |||||||||
| Asset Retirement Obligations | 11,375 | 10,948 | |||||||||
| Net Operating Loss Carryforward | 2,485 | 2,289 | |||||||||
| Other | 21,591 | 19,449 | |||||||||
| Total Deferred Tax Assets | $ | 170,884 | $ | 176,448 | |||||||
| Deferred Tax Liabilities | |||||||||||
| Differences Related to Property | $ | (403,559) | $ | (375,120) | |||||||
| Retirement Benefits Regulatory Asset | (19,520) | (22,892) | |||||||||
| Pension Expense | (26,720) | (26,034) | |||||||||
| Other | (27,016) | (20,147) | |||||||||
| Total Deferred Tax Liabilities | (476,815) | (444,193) | |||||||||
| Total Deferred Income Taxes | $ | (305,931) | $ | (267,745) | |||||||
As of December 31, 2025, we had net operating loss carryforwards for state tax purposes totaling $2.5 million which expire between 2029 and 2047, state tax credits totaling $15.9 million which expire between 2041 and 2043, and federal tax credits totaling $2.0 million which expire in 2047.
The following table summarizes the activity for unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023:
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance on January 1 | $ | 1,125 | $ | 1,489 | $ | 923 | |||||||||||
Increases (Decreases) for tax positions taken during a prior period | (4) | (189) | 596 | ||||||||||||||
| Increases for tax positions taken during the current period | 183 | 188 | 163 | ||||||||||||||
| Decreases as a result of a lapse of applicable statutes of limitations | (214) | (363) | (193) | ||||||||||||||
| Balance on December 31 | $ | 1,090 | $ | 1,125 | $ | 1,489 | |||||||||||
The Company and its subsidiaries file a consolidated U.S. federal income tax return and various state income tax returns. As of December 31, 2025, with limited exceptions, we are no longer subject to examinations by taxing authorities for tax years prior to 2022 for federal and North Dakota income taxes and prior to 2021 for Minnesota state income taxes.
One Big Beautiful Bill Act
On July 4, 2025, broad spending and tax law legislation referred to as the One Big Beautiful Bill Act (OBBBA) was enacted in the U.S. The aspects of the law that impact our financial position and may impact our future investment opportunities include certain changes to corporate income taxes and modifications to existing renewable energy credits.
The OBBBA includes changes to corporate income tax rules and regulations, including reinstating 100% bonus depreciation, immediate expensing of domestic research and development costs, and modifications to the business interest expense limitation.
The effects of changes in tax laws and regulations are required to be recognized in our consolidated financial statements in the period of enactment. Accordingly, in 2025, we recognized a reduction to our current year income tax payable in the amount of $7.0 million, with a corresponding increase to our deferred income tax liability, as a result of electing to deduct previously deferred research and development costs in the current year. We also anticipate electing bonus depreciation for eligible assets in our 2025 corporate income tax return, which resulted in a reduction of our current year income tax payable and an increase to our deferred income tax liability.
The OBBBA also alters the timing and eligibility of certain tax credits for renewable energy projects. Wind and solar projects that begin construction by July 4, 2026 are eligible for technology-neutral tax credits (production tax credits or investment tax credits). Projects that begin construction after July 4, 2026 must be in service by December 31, 2027 to qualify for technology-neutral tax credits. For projects that begin construction after December 31, 2025, new provisions restrict tax credit eligibility for those projects involving material assistance or effective control by a Foreign Entity of Concern, as defined in the legislation, which includes entities linked to China, Russia, Iran or North Korea.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 14, 2024 | |
| 2022 | Feb 15, 2023 | |
| 2021 | Feb 16, 2022 | |
| 2020 | Feb 19, 2021 | |
| 2019 | Feb 20, 2020 | |
| 2017 | Feb 20, 2018 | |
| 2015 | Feb 29, 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.