PETMED EXPRESS INCPETS
PETMED EXPRESS INC Income Taxes Disclosure
(9) Income Taxes
All income before provision for income taxes is domestic.
The components of the income tax provision consist of the following (in thousands):
| Year Ended March 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Current taxes | |||||||||||||||||
| Federal | $ | — | $ | 343 | $ | 490 | |||||||||||
| State | 14 | 93 | 408 | ||||||||||||||
Total current income tax provision | 14 | 436 | 898 | ||||||||||||||
Deferred income tax provision (benefit) | |||||||||||||||||
| Federal | (45) | 4,448 | 412 | ||||||||||||||
| State | (42) | 800 | (119) | ||||||||||||||
| Total deferred taxes | (87) | 5,248 | 293 | ||||||||||||||
Total income tax provision | $ | (73) | $ | 5,684 | $ | 1,191 | |||||||||||
We adopted ASU 2023-09 on a prospective basis in fiscal year 2026. The reconciliation of income tax provision computed at the U.S. federal statutory tax rates to income tax expense is as follows (in thousands):
Year Ended March 31, 2026 | |||||||||||
$ | % | ||||||||||
| US federal statutory income tax rate | (12,046) | 21.00 | % | ||||||||
| Domestic federal | |||||||||||
| Nontaxable and nondeductible items | |||||||||||
| Stock-based compensation | 203 | (0.35) | % | ||||||||
| Executive Compensation | 103 | (0.18) | % | ||||||||
| Goodwill Impairment | 5,598 | (9.76) | % | ||||||||
| Other | (77) | 0.14 | % | ||||||||
| Excess tax benefits on share-based payments | (1) | — | % | ||||||||
| Changes in valuation allowances | 6,169 | (10.76) | % | ||||||||
| Domestic state and local income taxes, net of federal effect | (22) | 0.04 | % | ||||||||
| Total | $ | (73) | 0.13 | % | |||||||
The differences between the effective income tax rate and the statutory U.S. federal income tax rate are as follows:
| Year Ended March 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Federal rate on income before taxes | 21.0 | % | 21.0 | % | ||||||||||
| State income taxes, net of federal tax benefit | 45.0 | % | (4.9) | % | ||||||||||
| Non-deductible executive compensation | 301.7 | % | (28.2) | % | ||||||||||
| Other permanent differences | 9.5 | % | (1.7) | % | ||||||||||
| Restricted stock shortfall adjustment | (63.5) | % | (4.4) | % | ||||||||||
| Deferred tax adjustments | (62.9) | % | (0.8) | % | ||||||||||
| Taxes payable adjustments | (61.9) | % | — | % | ||||||||||
| Valuation allowance | (1155.2) | % | — | % | ||||||||||
| Other | (2.0) | % | — | % | ||||||||||
| Total effective tax rate | (968.3) | % | (19.0) | % | ||||||||||
In fiscal 2026, state and local income taxes in Florida comprise of the majority of the state and local income taxes, net of federal effect category. In 2025, state and local income taxes in Florida comprise the majority of the state and local income taxes, net of federal effect category.
On July 4, 2025, the “One Big Beautiful Bill Act”, or “OBBBA,” was signed into law, which represents the enactment date under U.S. GAAP. Key corporate tax provisions include the restoration of 100% bonus depreciation, immediate expensing for domestic research and experimental expenditures, changes to Section 163(j) interest limitations, updates to Global Intangible Low-Taxed Income (“GILTI”), and Foreign-Derived Intangible Income (“FDII”) rules, amendments to energy credits, and expanded Section 162(m) aggregation requirements.
In accordance with ASC 740, the effects of the new tax legislation are recognized in the period of enactment. Management has evaluated the provisions of the OBBBA, recalculated temporary differences, reassessed valuation allowances, and considered any necessary adjustments. Based on this evaluation, management concluded that the effects of the OBBBA are not material to the Company’s consolidated financial statements for the twelve months ended March 31, 2026. Management will continue to monitor forthcoming guidance, interpretations, and technical clarifications to assess whether any future adjustments or additional disclosures may be required.
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows (in thousands):
| March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Deferred tax assets: | |||||||||||
Accrued sales tax liability | $ | 4,645 | $ | 5,101 | |||||||
Other accrued expenses | 101 | 200 | |||||||||
| Deferred stock compensation | 126 | 425 | |||||||||
| Bad debt reserves and inventory write-downs | 902 | 227 | |||||||||
Capitalized research and development costs | 3,942 | 3,201 | |||||||||
Lease liabilities | 136 | 250 | |||||||||
| Net operating loss carryforward | 9,280 | 3,431 | |||||||||
| Total deferred tax assets | 19,132 | 12,835 | |||||||||
| Deferred tax liabilities: | |||||||||||
Tax accounting method change | (178) | (349) | |||||||||
Intangible assets | (1,307) | (1,921) | |||||||||
Property and equipment | (2,606) | (3,181) | |||||||||
Right of use assets | (131) | (242) | |||||||||
Total deferred tax liabilities | (4,222) | (5,693) | |||||||||
| Valuation allowance | (15,085) | (7,405) | |||||||||
| Total net deferred tax (liability) asset | $ | (175) | $ | (263) | |||||||
The Company has evaluated the positive and negative evidence bearing upon the realizability of its net deferred tax assets, which are composed primarily of net operating losses and capitalized research and development costs. Management has considered the Company’s cumulative net losses in recent years and limited evidence of sustainable taxable income in future periods, and concluded that it is more likely than not that the Company will not recognize the benefits of deferred tax assets. As a result, a full valuation allowance has been established against the Company’s net deferred tax assets as of March 31, 2026. As of March 31, 2026, the Company recorded a deferred tax liability of $175 thousand, primarily attributable to acquired indefinite-lived intangibles with no corresponding tax basis. For accounting purposes, the intangible assets will not be amortized and subject to impairment review and testing. A portion of these deferred tax liabilities are not available as a source of income to support the realization of deferred tax assets because they are not expected to reverse in the same period as deferred tax assets. As a result, the Company has recorded a deferred tax liability for the portion of the liability that cannot be offset with indefinite lived deferred tax assets. Management reevaluates the positive and negative evidence at each reporting period. The valuation allowance increased by $7.7 million in fiscal year 2026 as compared to fiscal year 2025.
The provisions of FASB ASC 740-10-25-5 prescribe the minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Additionally, FASB ASC 740-10-25-5 provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under FASB ASC 740-10-25-5, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued are reflected as a reduction of the overall income tax provision. As of March 31, 2026 and 2025, we did not have any uncertain tax positions.
At March 31, 2026, the Company had $36.0 million of federal net operating loss carryforwards some of which begin to expire in fiscal 2027. The Company also had $33.4 million in state net operating loss
carryforwards which begin to expire in fiscal 2027. In fiscal 2024 the Company acquired PetCareRx, a loss corporation. The tax attributes acquired are subject to Internal Revenue Code Section 382 which limits the utilization annually. Outlined below are the tax attribute balances remaining as of March 31, 2026 (in thousands).
| PetCareRx Tax Attributes Acquired | Total | Sec. 382 limited utilization | Attributes for which a deferred tax asset is recorded | Expiration | |||||||||||||||||||
| Federal net operating losses - limited carryover | $ | 85,454 | $ | 83,300 | $ | 2,154 | Beginning in FY 2024 | ||||||||||||||||
| Federal net operating losses - unlimited carryover | $ | 10,501 | $ | — | $ | 10,501 | None | ||||||||||||||||
| Disallowed business interest expense carryover | $ | 1,855 | $ | — | $ | 1,855 | None | ||||||||||||||||
| State net operating losses | $ | 11,040 | $ | 2,066 | $ | 8,974 | Beginning in FY 2026 | ||||||||||||||||
| Tax Attributes as of March 31, 2025 | Total | Sec. 382 limited utilization | Attributes for which a deferred tax asset is recorded | Expiration | |||||||||||||||||||
| Federal net operating losses - limited carryover | $ | 77,052 | $ | 76,238 | $ | 814 | Beginning in FY 2026 | ||||||||||||||||
| Federal net operating losses - unlimited carryover | $ | 12,739 | $ | — | $ | 12,739 | None | ||||||||||||||||
| Disallowed business interest expense carryover | $ | — | $ | — | $ | — | None | ||||||||||||||||
| State net operating losses | $ | 11,884 | $ | 832 | $ | 11,052 | Beginning in FY 2026 | ||||||||||||||||
| Tax Attributes as of March 31, 2026 | Total | Sec. 382 limited utilization | Attributes for which a deferred tax asset is recorded | Expiration | |||||||||||||||||||
| Federal net operating losses - limited carryover | $ | 73,357 | $ | 72,543 | $ | 814 | Beginning in FY 2027 | ||||||||||||||||
| Federal net operating losses - unlimited carryover | $ | 35,213 | $ | — | $ | 35,213 | None | ||||||||||||||||
| Disallowed business interest expense carryover | $ | — | $ | — | $ | — | None | ||||||||||||||||
| State net operating losses | $ | 34,279 | $ | 832 | $ | 33,447 | Beginning in FY 2027 | ||||||||||||||||
A summary of income taxes paid, net of refunds received is as follows (in thousands):
| Year Ended | |||||
| March 31, 2026 | |||||
| US federal | $ | — | |||
| US state and local | |||||
| Arizona | 3 | ||||
| California | (24) | ||||
| Idaho | (28) | ||||
| Indiana | (5) | ||||
| New York | 8 | ||||
| Oklahoma | (6) | ||||
| Tennessee | 4 | ||||
| Texas | 84 | ||||
| Other | 16 | ||||
| Income taxes, net of amounts refunded | $ | 52 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Jun 2, 2026 | Showing above |
| 2025 | Oct 14, 2025 | |
| 2024 | Jun 14, 2024 | |
| 2023 | May 23, 2023 | |
| 2022 | May 24, 2022 | |
| 2021 | May 25, 2021 | |
| 2020 | May 26, 2020 | |
| 2019 | May 28, 2019 | |
| 2018 | May 29, 2018 | |
| 2017 | May 23, 2017 | |
| 2016 | May 24, 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.