Ralliant CorpRAL
Ralliant Corp Income Taxes Disclosure
NOTE 13. INCOME TAXES
Separation from Fortive
Prior to the Separation, Ralliant’s operating results were included in Fortive’s various consolidated U.S. federal and certain state income tax returns, as well as certain non-U.S. returns. For periods prior to the Separation, Ralliant’s combined financial statements reflect income tax expense and deferred tax balances as if it had filed tax returns on a standalone basis separate from Fortive. The separate return method applies the accounting guidance for income taxes to the standalone financial statements as if Ralliant was a separate taxpayer and a standalone enterprise for periods prior to the Separation.
In connection with the Separation, the Company entered into certain agreements with Fortive, including the Tax Matters Agreement (as defined below). The Tax Matters Agreement differentiates the treatment of tax matters arising from “joint” tax filings and “separate” tax filings for periods prior to the Separation. “Joint” filings generally relate to legal entities, including those in the United States, whose tax returns included the operations of both Fortive and the Company. In contrast, “separate” filings generally relate to certain entities, primarily outside the United States, whose tax returns included only the operations of either Fortive or the Company, as applicable. Pursuant to the Tax Matters Agreement, Fortive is responsible for, and has agreed to indemnify the Company against, all income tax liabilities attributable to “joint” filings for periods prior to the Separation. The Company remains responsible for certain pre-Separation income tax liabilities, including those attributable to its “separate” filings.
The Company is routinely examined by various domestic and international taxing authorities. The amount of income taxes the Company pays is subject to audit by federal, state, local, and foreign tax authorities, which may result in proposed assessments. The Company is subject to examination in the United States, various states, and foreign jurisdictions. In accordance with the Tax Matters Agreement with Fortive, the Company is liable for taxes arising from examinations of the following; (i) the Company’s initial U.S. federal taxable year June 28, 2025 through December 31, 2025; (ii) separate company state tax returns for all periods; and (iii) international separate company returns for all periods. The Company reviews its global tax positions on a quarterly basis. Based on these reviews, the results of discussions and resolutions of matters with certain tax authorities, tax rulings, and court decisions, and the expiration of statutes of limitations, reserves for contingent tax liabilities are accrued or adjusted as necessary.
Pursuant to U.S. tax law, the Company’s initial U.S. federal income tax return is for the short taxable year June 28, 2025 through December 31, 2025. The Company expects to file its initial U.S. federal income tax return for the 2025 short tax year with the Internal Revenue Service (“IRS”) during 2026. Therefore, the IRS has not yet begun examination of the Company. The Company remains subject to tax audit for its separate company tax returns in various U.S. states and foreign jurisdictions for the tax years 2014 to 2025.
Earnings and Income Taxes
Earnings before income taxes for the years ended December 31 were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | (228.6) | $ | 406.8 | $ | 407.6 | |||||||||||
| International | (987.8) | 25.8 | 102.2 | ||||||||||||||
| Total | $ | (1,216.4) | $ | 432.6 | $ | 509.8 | |||||||||||
The provision for income taxes for the years ended December 31 were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal U.S. | $ | 33.3 | $ | 53.3 | $ | 67.4 | |||||||||||
| Non-U.S. | 35.0 | 36.1 | 28.9 | ||||||||||||||
| State and local | 4.9 | 11.7 | 11.8 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal U.S. | (19.4) | (3.4) | (10.7) | ||||||||||||||
| Non-U.S. | (44.4) | (18.1) | (3.0) | ||||||||||||||
| State and local | (3.3) | (1.6) | (1.4) | ||||||||||||||
| Income tax provision | $ | 6.1 | $ | 78.0 | $ | 93.0 | |||||||||||
Deferred Tax Assets and Liabilities
All deferred tax assets and liabilities have been classified as noncurrent and are included in Other assets and Other long-term liabilities in the Consolidated and Combined Balance Sheets.
Deferred income tax assets and liabilities as of December 31 were as follows:
| 2025 | 2024 | ||||||||||
Deferred tax assets: | |||||||||||
| Operating lease liabilities | $ | 18.8 | $ | 18.6 | |||||||
Interest | 17.9 | — | |||||||||
| Inventories | 14.0 | 13.4 | |||||||||
| Pension benefits | 6.4 | 8.0 | |||||||||
| Stock-based compensation expense | 12.3 | 11.2 | |||||||||
| Capitalized expenses | 40.7 | 98.5 | |||||||||
| Tax credit and loss carryforwards | 11.5 | 55.3 | |||||||||
| Accruals, prepayments, and other | 15.8 | 14.5 | |||||||||
Deferred income | 31.5 | 13.1 | |||||||||
| Valuation allowances | (24.2) | (55.1) | |||||||||
| Total deferred tax assets | 144.7 | 177.5 | |||||||||
Deferred tax liabilities: | |||||||||||
| Property, plant and equipment | (18.1) | (14.0) | |||||||||
| Operating lease right-of-use assets | (17.5) | (18.8) | |||||||||
| Insurance, including self-insurance | (70.6) | (91.0) | |||||||||
| Goodwill, other intangibles, and other | (215.3) | (273.1) | |||||||||
| Total deferred tax liabilities | (321.5) | (396.9) | |||||||||
Net deferred tax assets/(liabilities) | $ | (176.8) | $ | (219.4) | |||||||
Reported As: | |||||||||||
Deferred tax assets | $ | 15.1 | $ | 11.9 | |||||||
Deferred tax liabilities | (191.9) | (231.3) | |||||||||
Net deferred tax assets/(liabilities) | $ | (176.8) | $ | (219.4) | |||||||
In accordance with the methodology described in Note 2, valuation allowances have been established for deferred tax assets to the extent they are not expected to be realized within the applicable carryforward periods. Ralliant’s valuation allowance decreased by $31.0 million during the current year, primarily due to deferred tax adjustments resulting from the separation from Fortive.
As of December 31, 2025, Ralliant’s U.S. and non-U.S. net operating loss carryforwards totaled $97.7 million, of which $8.3 million was related to federal net operating loss carryforwards, $70.1 million was related to state net operating loss carryforwards, and $19.3 million was related to non-U.S. net operating loss carryforwards. Certain of these losses may be carried forward, while others expire at various dates ranging from 2026 through 2043. Utilization of certain loss carryforwards is subject to annual limitations, which may result in expiration prior to full utilization.
As of December 31, 2025, Ralliant’s U.S. and non-U.S. tax credit carryforwards totaled $4.0 million, which was primarily related to U.S. tax credit carryforwards. Certain of these credits can be carried forward indefinitely and others can be carried forward to various dates from 2026 through 2035. As of December 31, 2025, the Company maintained a $0.7 million valuation allowance related to certain tax credit carryforwards.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, including, but not limited to, the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act (“TCJA”), modifications to the international tax framework, and the restoration of favorable tax treatment for certain business investments. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. As a result of the retroactive treatment for research and experimental expenditures enacted under OBBBA, the OBBBA is expected to provide significant cash tax benefits to the Company in 2025 through 2027. In addition, Ralliant was notified of Fortive’s intent to accelerate the amortization of previously capitalized research and experimental expenditures. Accordingly, Ralliant reduced its deferred tax assets by approximately $57.0 million in 2025.
Effective Income Tax Rate
The effective income tax rate for the years ended December 31 varies from the U.S. statutory federal income tax rate as follows:
| 2025 | |||||||||||
Amount | Percent | ||||||||||
US federal statutory tax rate | $ | (255.4) | 21.0 | % | |||||||
State and local income taxes, net of federal income tax effect(a) | 1.3 | (0.1) | % | ||||||||
Effect of changes in tax laws or rates enacted in the current period | — | — | % | ||||||||
Effect of cross-border tax laws | |||||||||||
Foreign-derived intangible income | (16.9) | 1.4 | % | ||||||||
Other | 6.5 | (0.5) | % | ||||||||
Tax credits | (6.9) | 0.6 | % | ||||||||
Changes in valuation allowances | — | — | % | ||||||||
Nontaxable or nondeductible items | |||||||||||
Goodwill impairment | 74.5 | (6.1) | % | ||||||||
Other | 2.4 | (0.2) | % | ||||||||
Changes in unrecognized tax benefits | 7.2 | (0.6) | % | ||||||||
Other adjustments | (1.6) | 0.1 | % | ||||||||
Foreign tax effects | |||||||||||
Germany | |||||||||||
Statutory tax rate difference between Germany and United States | 68.2 | (5.6) | % | ||||||||
Trade and local income taxes | (193.5) | 15.9 | % | ||||||||
| Goodwill impairment | 325.2 | (26.7) | % | ||||||||
Changes in valuation allowances | 16.8 | (1.4) | % | ||||||||
Other | (8.7) | 0.7 | % | ||||||||
Other foreign jurisdictions | (13.0) | 1.0 | % | ||||||||
Effective income tax rate | $ | 6.1 | (0.5) | % | |||||||
(a) California, Maryland, Massachusetts, Oregon, and Illinois made up the majority (greater than 50 percent) of the tax effect in this category. | |||||||||||
| 2024 | 2023 | ||||||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | |||||||
| Increase (decrease) in tax rate resulting from: | |||||||||||
| State income taxes (net of federal income tax benefit) | 1.8 | % | 1.6 | % | |||||||
| Foreign income taxed at different rates than U.S. statutory rate | (4.7) | % | 0.2 | % | |||||||
| U.S. federal permanent differences related to the TCJA | (6.3) | % | (6.0) | % | |||||||
| Effect of change in tax rates enacted in the current period | — | % | (1.7) | % | |||||||
| Changes in valuation allowances | 7.4 | % | 2.7 | % | |||||||
Other | (1.2) | % | 0.4 | % | |||||||
| Effective income tax rate | 18.0 | % | 18.2 | % | |||||||
Ralliant’s effective tax rate for 2025 differs from the U.S. federal statutory rate of 21% due primarily to non-deductible goodwill impairment, the enacted reduction in the German corporate tax rate on deferred tax balances, and the positive effects of the TCJA.
Ralliant’s effective tax rate for 2024 differs from the U.S. federal statutory rate of 21% due primarily to the impacts of credits and deductions provided by law, including those associated with state income taxes and changes in its uncertain tax position reserves.
Ralliant’s effective tax rate for 2023 differs from the U.S. federal statutory rate of 21% due primarily to the positive and negative effects of the TCJA, U.S. federal permanent differences, and the impacts of credits and deductions provided by law, including those associated with state income taxes.
Globally, the Company monitors legislative action and the Organization for Economic Co-operation and Development (“OECD”) initiatives related to global taxation. The impact of the OECD framework for a “Pillar Two” global minimum corporate income tax rate of 15% has been included within the provision for income taxes. In January 2026, the OECD issued additional administrative guidance related to Pillar Two. The Company is evaluating the impact of this guidance on its global minimum tax exposure. Based on current information, the Company does not expect a material impact on its consolidated and condensed financial statements.
As part of the Separation, Ralliant entered into the Tax Matters Agreement with Fortive, which determines the treatment and responsibilities of both parties including joint returns and separate returns filings. Refer to Note 18 to the consolidated and combined financial statements included in this Annual Report for additional information on the Tax Matters Agreement.
Cash Payments
Ralliant made income tax payments of $74.2 million during the year. Prior to the Separation, the Company did not make any U.S. federal income tax payments, foreign tax payments, or payments for other “joint” tax returns for which the responsibility belongs to Fortive. Ralliant made income tax payments for “separate” tax returns for which the responsibility belongs to Ralliant per the Tax Matters Agreement.
The cash payments, net of refunds, for the year ended December 31, 2025 was as follows:
Federal taxes | $ | 8.5 | |||
State taxes | 6.4 | ||||
Foreign taxes: | |||||
| Hong Kong | 15.9 | ||||
| China | 10.5 | ||||
| Cayman Islands | 9.6 | ||||
| Canada | 8.9 | ||||
| Germany | 7.1 | ||||
Other foreign jurisdictions | 7.3 | ||||
Total cash taxes paid | $ | 74.2 | |||
Foreign tax payments of $15.9 million in Hong Kong and $9.6 million in the Cayman Islands were incurred in connection with internal tax transactions related to the Separation and represent one-time payments.
Unrecognized Tax Benefits
Ralliant recognizes tax benefits from uncertain tax positions only if, in its assessment, it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in evaluating tax positions and determining income tax provisions. The Company re-evaluates the technical merits of its tax positions and may recognize an uncertain tax benefit in certain circumstances, including when: (i) a tax audit is completed; (ii) applicable tax laws change, including a tax case ruling or legislative guidance; or (iii) the applicable statute of limitations expires. Ralliant recognizes potential accrued interest and penalties associated with unrecognized tax positions in Income tax expense within the Consolidated and Combined Statements of (Loss) Earnings.
As of December 31, 2025, gross unrecognized tax benefits were $23.9 million ($23.0 million total, including $2.7 million associated with interest, and net of the impact of $3.6 million of indirect tax benefits). The Company recognized approximately $2.7 million, $0.5 million, and $0.5 million, in potential interest associated with uncertain tax positions during 2025, 2024, and 2023, respectively. To the extent taxes are not assessed with respect to uncertain tax positions, substantially all amounts accrued (including interest and net of indirect offsets) will be reduced and reflected as a reduction of the overall income tax provision. Unrecognized tax benefits and associated accrued interest and penalties are included in the Company’s income tax provision.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding amounts accrued for potential interest and penalties, is as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized tax benefits, beginning of year | $ | 12.6 | $ | 16.4 | $ | 16.3 | |||||||||||
| Additions based on tax positions related to the current year | 6.7 | 0.6 | 0.9 | ||||||||||||||
| Additions for tax positions of prior years | 4.3 | — | — | ||||||||||||||
| Reductions for tax positions of prior years | (0.6) | (6.9) | (0.8) | ||||||||||||||
| Effect of foreign currency translation | 0.9 | — | — | ||||||||||||||
Acquisition-related adjustments | — | 2.5 | — | ||||||||||||||
| Unrecognized tax benefits, end of year | $ | 23.9 | $ | 12.6 | $ | 16.4 | |||||||||||
Repatriation and Unremitted Earnings
As of December 31, 2025, the Company has a partial permanent reinvestment assertion on the undistributed earnings of its foreign subsidiaries outside of the United States and for which foreign deferred taxes have not been provided. No provisions for foreign remittance taxes have been made with respect to earnings that are planned to be permanently reinvested. The amount of foreign remittance taxes that may be applicable to such earnings is not readily determinable due to local legal restrictions that may apply to a portion of these earnings, potential changes in foreign tax laws during applicable restriction periods, and the various tax planning alternatives that could be available if such earnings were repatriated.
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.