Rent the Runway, Inc.RENT
Rent the Runway, Inc. Income Taxes Disclosure
Income Taxes
The Company’s net income (loss) before income tax benefit / (expense) from income taxes includes the following components:
| Year Ended January 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Domestic | $ | 21.4 | $ | (71.2) | $ | (114.0) | |||||||||||
| Foreign | 1.3 | 1.6 | 1.0 | ||||||||||||||
Net income (loss) before income tax benefit / (expense) | $ | 22.7 | $ | (69.6) | $ | (113.0) | |||||||||||
Total income taxes allocated to operations are as follows:
| Year Ended January 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
Current provision: | |||||||||||||||||
Federal | $ | — | $ | — | $ | — | |||||||||||
State and local | (0.1) | (0.1) | — | ||||||||||||||
| Foreign | — | (0.2) | (0.2) | ||||||||||||||
| Total current provision | (0.1) | (0.3) | (0.2) | ||||||||||||||
| Deferred provision: | |||||||||||||||||
| Federal | — | — | — | ||||||||||||||
| State and local | — | — | — | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total deferred provision | — | — | — | ||||||||||||||
| Total income tax benefit / (expense) | $ | (0.1) | $ | (0.3) | $ | (0.2) | |||||||||||
The significant components of the Company’s net deferred tax assets (liabilities) are as follows:
Year Ended January 31, | ||||||||
| 2026 | 2025 | |||||||
Deferred tax assets: | ||||||||
Federal and state net operating loss carryforwards | $ | 135.7 | $ | 171.5 | ||||
Customer credits liability | 1.7 | 1.6 | ||||||
Interest limitation | 64.0 | 64.3 | ||||||
Fixed assets | 4.3 | 4.3 | ||||||
Capitalized R&D expenses | 21.2 | 16.4 | ||||||
Tax credits | 6.3 | 6.8 | ||||||
Share-based compensation | 0.4 | 0.6 | ||||||
Operating lease liability | 11.1 | 12.5 | ||||||
Other | 0.4 | 0.5 | ||||||
| Total deferred tax assets | 245.1 | 278.5 | ||||||
Less: valuation allowance | (237.1) | (269.6) | ||||||
| 8.0 | 8.9 | |||||||
Deferred tax liabilities: | ||||||||
Fixed assets | — | — | ||||||
Operating lease right-of-use-asset | (8.0) | (8.9) | ||||||
Total deferred tax liabilities | (8.0) | (8.9) | ||||||
Net deferred tax assets | $ | — | $ | — | ||||
Provisions enacted in the One, Big, Beautiful Bill Act (“OBBBA”) on July 4, 2025 relating to research and experimental expenditures became effective for tax years beginning after December 31, 2024, and added Section 174A to the Internal Revenue Code of 1986, as amended (the “Code”). Under the updated guidance, domestic research and experimental expenditures may be deducted as incurred or capitalized and amortized over five years. In addition, taxpayers may elect under Section 59(e) to capitalize and amortize such expenditures. The Company has elected under Section 59(e) to capitalize and amortize domestic research and experimental expenditures over a ten year period. Foreign research and experimental expenditures continue to be capitalized and amortized over a 15-year period. The Company evaluated the impact of this legislation and determined that it did not have a material impact on its consolidated financial statements as the Company continues its existing method of capitalizing and amortizing such expenditures.
As of January 31, 2026, the Company had federal net operating loss tax carryforwards of $507.25 million. Approximately $7.8 million of the net operating loss carryforwards will expire at various times through 2038, while $499.45 million will not expire. In connection with the Company’s recapitalization transaction, the Company excluded certain income resulting from the cancellation of debt income under Section 108(a)(1)(B) of the Code. As a result of this exclusion, the Company’s net operating loss carryforwards were reduced pursuant to the attribute reduction rule under Section 108(b). Consequently, the Company’s net operating loss carryforwards as of January 31, 2026 have been adjusted accordingly to reflect this reduction.
In general, under Sections 382 and 383 of the Code, and corresponding provisions of state law, an ownership change, generally defined as a significant change in equity ownership, may limit the Company’s ability to utilize net operating loss carryforwards and other tax attributes generated prior to the change. The Company previously completed a Section 382 analysis and concluded that an ownership change occurred in 2010; however, all net operating losses subject to that limitation were fully utilized in prior periods. The Company subsequently updated its Section 382 analysis through November 2025 and further determined that an additional ownership change occurred on October 28, 2025. As a result, net operating losses arising prior to that date are subject to annual limitations on utilization under Section 382, which may limit the amount of such net operating losses available to offset future taxable income. These limitations were considered in assessing the realizability of the Company’s deferred tax assets, and the Company has recorded a full valuation allowance against its U.S. deferred tax assets.
As of January 31, 2026 and 2025, the Company maintained a valuation allowance against all of its U.S. deferred tax assets since, in the judgment of management, the realization of these assets was not considered more likely than not. The net change in the total valuation allowance for the years ended January 31, 2026 and 2025 was a decrease of $32.5 million and an increase of $13.5 million, respectively.
The Company has elected to prospectively adopt the guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the year ended January 31, 2026, in accordance with ASU 2023-09:
| Year Ended January 31, | ||||||||
| 2026 | ||||||||
| Amount | Percent | |||||||
| US Federal Statutory Tax Rate | $ | (4.8) | 21.00 | % | ||||
| State and Local income taxes, net of federal income tax effect (1) | (0.1) | 0.22 | % | |||||
| Effects of Cross Border Tax Laws | ||||||||
| GILTI Inclusion | (0.2) | 1.06 | % | |||||
| Tax Credits | ||||||||
R&D Credits | (0.5) | 2.31 | % | |||||
| Changes in Valuation Allowance | (13.6) | 59.81 | % | |||||
Foreign Tax Effects: | ||||||||
| Ireland tax rate differential | 0.3 | (1.21) | % | |||||
Other | — | — | % | |||||
| NonTaxable or Nondeductible Items: | ||||||||
| (Gain)/Loss on Debt Restructuring | 20.2 | (88.92) | % | |||||
| Nondeductible Compensation | (0.8) | 3.33 | % | |||||
| Nondeductible Stock Compensation | (0.5) | 2.38 | % | |||||
| Other | (0.2) | 0.66 | % | |||||
| Changes in Unrecognized Tax Benefits | 0.1 | (0.35) | % | |||||
| Effective Tax Rate | $ | (0.1) | 0.29 | % | ||||
(1)State taxes in Texas made up the majority (greater than 50%) of the tax effect in this category.
The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the years ended January 31, 2025 and 2024:
| Year Ended January 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Compute “expected” tax benefit | 21.00 | % | 21.00 | % | |||||||
| State income taxes, net of federal benefit | (0.13) | % | (0.02) | % | |||||||
| Nondeductible compensation | (1.69) | % | (2.55) | % | |||||||
| Share-based compensation | 0.16 | % | (0.09) | % | |||||||
| Current year change in valuation allowance | (19.24) | % | (19.74) | % | |||||||
| Other | (0.49) | % | 1.26 | % | |||||||
| Income tax benefit (expense) | (0.39) | % | (0.14) | % | |||||||
The following table summarizes the unrecognized tax benefit activity for the periods indicated:
| Year Ended January 31, | |||||||||||
| 2026 | 2025 | 2024 | |||||||||
| Balance as of the beginning of the period | $ | 1.2 | $ | 1.2 | $ | 0.9 | |||||
| Additions for tax positions of the current year | — | — | 0.3 | ||||||||
| Additions for tax positions of prior years | |||||||||||
| Reductions for tax positions of prior years | (0.1) | — | — | ||||||||
| Lapse of statute of limitations | |||||||||||
| Settlements | |||||||||||
| Balance as of the end of the period | $ | 1.1 | $ | 1.2 | $ | 1.2 | |||||
The amount of unrecognized tax benefits included on the Consolidated Balance Sheets as of January 31, 2026 and 2025 are $1.1 million and $1.2 million, respectively.
The Company is subject to United States federal and state taxation, as well as subject to taxation in Ireland. The Company may be subject to examination by the Internal Revenue Service (the “IRS”) and as of January 31, 2026, tax year 2022 and years filed thereafter remain open to examination. These examinations may result in proposed adjustments to the Company’s income tax liability or tax attributes with respect to years under examination as well as subsequent periods.
The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income and deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. Any adjustments as a result of any examination may result in additional taxes or penalties against the Company. If the ultimate result of these audits differs from original or adjusted estimates, they could have a material impact on the Company’s tax provision.
The following table sets forth total taxes paid, net of refunds received, by jurisdiction:
| Year Ended January 31, | |||||
| 2026 | |||||
| Taxes Paid, net of refunds received: | |||||
| State and Local: | |||||
| Texas | $ | 0.13 | |||
| New York State | 0.02 | ||||
| New York City | 0.02 | ||||
| South Carolina | 0.02 | ||||
| Philadelphia | 0.02 | ||||
| Other | 0.01 | ||||
| Total State and Local taxes paid, net of refunds received | 0.22 | ||||
| Foreign: | |||||
| Ireland | 0.04 | ||||
| Total Taxes Paid, net of refund received | $ | 0.26 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Apr 14, 2026 | Showing above |
| 2025 | Apr 15, 2025 | |
| 2024 | Apr 11, 2024 | |
| 2023 | Apr 13, 2023 | |
| 2022 | Apr 14, 2022 | |
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.