PATRICK INDUSTRIES INCPATK

PATRICK INDUSTRIES INC Income Taxes Disclosure

10-KFiled Feb 19, 20264 min read
INCOME TAXES
The provision for income taxes consists of the following:
Year Ended December 31,
($ in thousands)202520242023
Current income tax expense:   
U.S. federal$556 $35,288 $44,126 
U.S. state and local5,921 11,324 4,816 
Foreign— 38 10 
Total current6,477 46,650 48,952 
Deferred income tax (benefit) expense, net:
U.S federal34,020 (5,509)(3,578)
U.S. state and local1,519 (971)2,994 
Foreign(10)(1)(7)
Total deferred35,529 (6,481)(591)
Total income tax provision$42,006 $40,169 $48,361 
The Company has accounted for in its 2025, 2024, and 2023 income tax provision the impact of Global Intangible Low-Taxed Income, base-erosion anti-abuse tax, interest expense limitations under Section 163(j) of the Internal Revenue Code of 1986, and foreign-derived intangible income deductions, although such provisions were either not applicable or resulted in a zero or immaterial impact to the consolidated financial statements.
Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, as described in Note 1 "Basis of Presentation and Significant Accounting Policies", cash paid for income taxes, net of refunds, during the year ended December 31, 2025 was as follows:
($ in thousands)
Federal$18,160 
State (1)
5,482 
Foreign— 
Total cash paid for income taxes, net of refunds$23,642 
(1)For the year ended December 31, 2025, Indiana was the only U.S state jurisdiction where cash payments equaled or exceeded 5% of total income taxes.
Cash paid for income taxes, net of refunds during the years ended December 31, 2024 and 2023 was $38.1 million and $84.3 million, respectively.
Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, as described in Note 1 "Basis of Presentation and Significant Accounting Policies", the reconciliation of taxes at the federal statutory rate to our provision for income taxes for the year ended December 31, 2025 was as follows:
($ in thousands)Year Ended December 31, 2025
U.S. federal statutory tax rate$37,183 21.0 %
United States:
State and local income taxes (1)
6,200 3.5 %
Tax credits:
Research and development tax credits(1,817)(1.0)%
Nontaxable or nondeductible items:
Section 162(m) permanent add back2,826 1.6 %
Excess tax benefit on stock-based compensation(3,646)(2.1)%
Other adjustments1,260 0.7 %
Income taxes$42,006 23.7 %
(1)For the year ended December 31, 2025, the states that contributed to the majority (greater than 50%) of the tax effect in this category include Indiana and Tennessee.
A reconciliation of taxes at the federal statutory rate to our provision for income taxes for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows:
($ in thousands)20242023
Rate applied to pretax income$37,500 21.0 %$40,201 21.0 %
State taxes, net of federal tax effect7,975 4.5 %6,797 3.6 %
Research and development tax credits(3,750)(2.1)%(2,889)(1.5)%
Section 162(m) permanent add back4,603 2.6 %6,315 3.3 %
Excess tax benefit on stock-based compensation(6,469)(3.6)%(3,513)(1.8)%
Other310 0.1 %1,450 0.7 %
Income taxes$40,169 22.5 %$48,361 25.3 %
The composition of the deferred tax assets and liabilities is as follows:  
As of December 31,
($ in thousands)20252024
Deferred tax assets:
Trade receivables allowance
$1,013 $1,215 
Inventory capitalization4,021 4,329 
Inventory reserves
9,089 8,503 
Federal NOL carryforwards565 386 
State NOL carryforwards1,144 453 
Accrued expenses17,247 18,831 
Deferred compensation838 805 
Operating lease liabilities51,109 50,784 
Share-based compensation7,286 6,498 
Capitalized research & experimentation costs— 30,140 
Other911 278 
Total deferred tax assets before valuation allowance93,223 122,222 
Less: valuation allowance
(408)(480)
Total deferred tax assets, net of valuation allowance$92,815 $121,742 
Deferred tax liabilities:
Prepaid expenses$(5,235)$(5,569)
Operating lease right-of-use assets(49,920)(49,785)
Depreciation expense(49,678)(45,026)
Intangibles(84,857)(82,708)
Total deferred tax liabilities(189,690)(183,088)
Net deferred tax liabilities$(96,875)$(61,346)
As of December 31, 2025 and 2024, the Company had gross federal, state, and foreign net operating losses of approximately $34.7 million and $12.8 million, respectively. These loss carryforwards generally expire between tax years ending December 31, 2025 and December 31, 2042. The components of the valuation allowance relate to certain acquired federal, state and foreign net operating loss carryforwards that the Company anticipates will not be utilized prior to their expiration, either due to income limitations or limitations under Section 382 of the Internal Revenue Code of 1986. The tax effected values of these net operating losses are $1.7 million and $0.8 million at December 31, 2025 and 2024, respectively, exclusive of valuation allowances of $0.4 million and $0.5 million at December 31, 2025 and 2024, respectively.
On July 4, 2025, the One Big Beautiful Bill Act (the "OBBBA") was signed into law. The OBBBA makes permanent many of the expired and expiring tax provisions originally enacted in the Tax Cuts and Jobs Act of 2017, including the immediate expensing of domestic research and development expenditures, more favorable business interest deductibility and 100 percent first-year bonus depreciation on qualifying property with effective dates in 2025. In accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes,” the Company has recognized the effects of the OBBBA for the provisions currently enacted, which has increased the Company’s deferred tax liability. The Company anticipates that the OBBBA will reduce its federal income tax liability and related tax payments for the current and future years but will not have a significant impact on its annual effective tax rate.
The Company is subject to periodic audits by domestic tax authorities. For the majority of tax jurisdictions, the U.S. federal statute of limitations remains open for the years 2022 and later. Uncertain tax benefits were immaterial as of December 31, 2025 and 2024 and activity related to uncertain tax benefits was immaterial for all periods presented.
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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.

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