Quest Resource Holding Corp Income Taxes Disclosure
10. Income Taxes
We compute income taxes using the asset and liability method in accordance with FASB ASC Topic 740, Income Taxes. Under the asset and liability method, we determine deferred income tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities and measure those using currently enacted tax rates and laws. We provide a valuation allowance for the amount of deferred tax assets that, based on available evidence, are more likely than not to be realized. Realization of our net operating loss carryforward was not reasonably assured as of December 31, 2025 and 2024, and we have recorded a valuation allowance of $25.3 million and $21.4 million, respectively, against deferred tax assets in excess of deferred tax liabilities in the accompanying consolidated financial statements.
The components of net deferred taxes are as follows (in thousands):
|
|
As of December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets (liabilities): |
|
|
|
|
|
|
||
Net operating loss |
|
$ |
3,333 |
|
|
$ |
1,258 |
|
Depreciation and amortization |
|
|
8,821 |
|
|
|
9,271 |
|
Stock-based compensation |
|
|
4,621 |
|
|
|
4,637 |
|
Interest expense |
|
|
8,153 |
|
|
|
6,005 |
|
Capitalized software costs |
|
|
180 |
|
|
|
(21 |
) |
Bonus accrual |
|
|
(46 |
) |
|
|
131 |
|
Allowance for doubtful accounts |
|
|
205 |
|
|
|
218 |
|
Other |
|
|
82 |
|
|
|
(98 |
) |
Total deferred tax assets, net |
|
|
25,349 |
|
|
|
21,401 |
|
Less: valuation allowance |
|
|
(25,349 |
) |
|
|
(21,401 |
) |
Net deferred taxes |
|
$ |
— |
|
|
$ |
— |
|
Our statutory income tax rate is expected to be approximately 26%. We had income tax expense of $16 thousand and $291 thousand for the years ended December 31, 2025 and 2024, respectively, which is attributable to state obligations for states with no net operating loss carryforwards, the continued reserve against the benefit of the net operating losses at the federal level, and other timing differences. The provision for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
Years Ended December 31, |
|
|||||
|
|
|
|
|
|
2025 |
|
|
2024 |
|
||
Current |
|
|
|
|
|
$ |
16 |
|
|
$ |
291 |
|
Deferred |
|
|
|
|
|
|
— |
|
|
|
— |
|
Total |
|
|
|
|
|
$ |
16 |
|
|
$ |
291 |
|
The reconciliation between the income tax expense calculated by applying statutory rates to net loss and the income tax expense reported in the accompanying consolidated financial statements is as follows (in thousands):
|
|
Years Ended December 31, |
|
|||||||||||||
|
|
2025 |
|
|
2024 |
|
||||||||||
|
|
Tax Expense |
|
|
Rate |
|
|
Tax Expense |
|
|
Rate |
|
||||
U.S. federal statutory rate applied to pretax loss |
|
$ |
(3,227 |
) |
|
|
21.0 |
% |
|
$ |
(3,102 |
) |
|
|
21.0 |
% |
State taxes - current, net of federal benefit |
|
|
13 |
|
|
|
(0.1 |
)% |
|
|
291 |
|
|
|
(2.0 |
)% |
State taxes - deferred |
|
|
(802 |
) |
|
|
5.2 |
% |
|
|
(808 |
) |
|
|
5.5 |
% |
Permanent differences |
|
|
47 |
|
|
|
(0.3 |
)% |
|
|
(171 |
) |
|
|
1.2 |
% |
Change in state tax rates |
|
|
20 |
|
|
|
(0.1 |
)% |
|
|
30 |
|
|
|
(0.2 |
)% |
Other |
|
|
17 |
|
|
|
(0.1 |
)% |
|
|
63 |
|
|
|
(0.4 |
)% |
Change in valuation allowance |
|
|
3,948 |
|
|
|
(25.7 |
)% |
|
|
3,988 |
|
|
|
(27.0 |
)% |
Total |
|
$ |
16 |
|
|
|
(0.1 |
)% |
|
$ |
291 |
|
|
|
(1.9 |
)% |
The Company’s state income tax expense for the year ended December 31, 2025 primarily relates to operations in Texas, which represent more than 50% of the total state tax expense recognized for the period.
As of December 31, 2025 and 2024, we had federal income tax net operating loss carryforwards of approximately $12.6 million and $4.8 million, respectively. $8.3 million of the 2025 net operating loss carryforwards can be carried forward indefinitely, and the remaining balance primarily expires at various dates ranging from 2036 through 2037. We are subject to limitations existing under
Internal Revenue Code Section 382 (Change of Control) relating to the availability of the operating loss; therefore, utilization of a portion of the Company's net operating loss may be limited in future years.
As of December 31, 2025 and 2024, we did not recognize any assets or liabilities relative to uncertain tax positions, nor do we anticipate any significant unrecognized tax benefits will be recorded during 2026. It is our policy to classify interest and penalties on income taxes as interest expense or penalties expense, should any be incurred.
Tax positions are positions taken in a previously filed tax return or positions expected to be taken in a future tax return that are reflected in measuring current or deferred income tax assets and liabilities reported in the financial statements. Tax positions include the following:
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 13, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 12, 2024 | |
| 2022 | Mar 23, 2023 | |
| 2021 | Mar 17, 2022 | |
| 2020 | Mar 11, 2021 | |
| 2019 | Mar 12, 2020 | |
| 2018 | Mar 14, 2019 | |
| 2017 | Apr 2, 2018 | |
| 2016 | Mar 31, 2017 | |
| 2015 | Mar 16, 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.