SONIC AUTOMOTIVE INCSAH
SONIC AUTOMOTIVE INC Income Taxes Disclosure
Income Taxes
The provision for income taxes - benefit (expense) consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
Current tax expense: | |||||||||||||||||
| Federal | $ | (73.8) | $ | (52.7) | $ | (62.6) | |||||||||||
State and local | (6.1) | (16.5) | (19.7) | ||||||||||||||
Total current tax expense | (79.9) | (69.2) | (82.3) | ||||||||||||||
Deferred tax benefit: | |||||||||||||||||
| Federal | 24.8 | 23.1 | 17.1 | ||||||||||||||
| State and local | 1.0 | 6.0 | 1.5 | ||||||||||||||
| Total deferred tax benefit | 25.8 | 29.1 | 18.6 | ||||||||||||||
| Total provision for income taxes - expense | $ | (54.1) | $ | (40.1) | $ | (63.7) | |||||||||||
The reconciliation of the U.S. statutory federal income tax rate with our federal and state overall effective income tax rate in accordance with ASU 2023-09 is as follows for the year ending December 31, 2025:
| Year Ended December 31, 2025 | |||||||||||
In USD (in millions) | Percent of Pre-tax Income | ||||||||||
| U.S. statutory federal income tax rate | $ | (36.3) | 21.0 | % | |||||||
State and local income tax, net of federal benefit (1) | (4.1) | 2.4 | % | ||||||||
Nontaxable or nondeductible items | |||||||||||
Nondeductible compensation | (7.6) | 4.9 | % | ||||||||
Share-based compensation | 3.5 | (2.0) | % | ||||||||
Other | (2.1) | 0.6 | % | ||||||||
Changes in unrecognized tax benefits | (0.6) | 0.4 | % | ||||||||
| Other | (6.9) | 4.0 | % | ||||||||
Income tax expense, effective tax rate | $ | (54.1) | 31.3 | % | |||||||
(1) The states that constitute the majority of the tax effect in this category include California, Texas, and Florida.
For the years ending December 31, 2024 and 2023, the reconciliation of the U.S. statutory federal income tax rate with our federal and state overall effective income tax rate is as follows:
Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| U.S. statutory federal income tax rate | 21.0 | % | 21.0 | % | |||||||
| Effective state income tax rate | 5.2 | % | 6.1 | % | |||||||
| Valuation allowance adjustments | (0.1) | % | (0.3) | % | |||||||
| Uncertain tax positions | 0.6 | % | 2.2 | % | |||||||
| Effect of goodwill impairment and indefinite lived intangible assets | (12.1) | % | 0.0 | % | |||||||
| Non-deductible compensation | 1.9 | % | 1.4 | % | |||||||
| Other | (0.8) | % | (4.1) | % | |||||||
| Effective income tax rate | 15.7 | % | 26.3 | % | |||||||
Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Significant components of our deferred tax assets and liabilities were as follows:
| December 31, 2025 | December 31, 2024 | ||||||||||
| (In millions) | |||||||||||
| Deferred tax assets: | |||||||||||
| Accruals and reserves | $ | 39.1 | $ | 40.6 | |||||||
| State net operating loss carryforwards | 6.6 | 6.6 | |||||||||
| Basis difference in liabilities related to right-of-use assets | 165.4 | 147.7 | |||||||||
| Other | 5.1 | 4.4 | |||||||||
| Total deferred tax assets | 216.2 | 199.3 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Basis difference in property and equipment | (9.6) | (3.8) | |||||||||
| Basis difference in goodwill | (49.3) | (79.7) | |||||||||
| Basis difference in right-of-use assets | (147.9) | (133.2) | |||||||||
| Other | (2.0) | (2.6) | |||||||||
| Total deferred tax liabilities | (208.8) | (219.3) | |||||||||
| Valuation allowance | (6.5) | (6.2) | |||||||||
| Net deferred tax asset (liability) | $ | 0.9 | $ | (26.2) | |||||||
Net long-term deferred tax balances were approximately $0.9 million deferred tax assets and $26.2 million deferred tax liabilities at December 31, 2025 and 2024, respectively, and are recorded in other assets and other long-term liabilities, respectively, on the accompanying consolidated balance sheets.
We have approximately $156.5 million in gross state net operating loss carryforwards that will expire between 2026 and 2045. Management reviews these carryforward positions, the time remaining until expiration and other opportunities to realize these carryforwards in making an assessment as to whether it is more likely than not that these carryforwards will be realized. The results of future operations, regulatory framework of the taxing authorities and other related matters cannot be predicted with certainty and, therefore, differences from the assumptions used in the development of management’s judgment could occur. As of December 31, 2025, we had recorded a valuation allowance amount of approximately $6.5 million related to certain state net operating loss carryforward deferred tax assets as we determined that we would not be able to generate sufficient state taxable income in the related entities to realize the accumulated net operating loss carryforward balances.
The following table is a reconciliation of our unrecognized tax benefits for the years ended December 31, 2025, 2024, and 2023:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In millions) | |||||||||||||||||
Unrecognized tax benefits, beginning of year | $ | 4.5 | $ | 9.3 | $ | 4.4 | |||||||||||
Increases (decreases) for tax positions of prior years | — | (5.6) | 5.5 | ||||||||||||||
Additions based on tax positions related to the current year | 0.5 | 1.2 | (0.5) | ||||||||||||||
| Lapse of statute of limitations | (0.2) | (0.4) | (0.1) | ||||||||||||||
Unrecognized tax benefits, end of year | $ | 4.8 | $ | 4.5 | $ | 9.3 | |||||||||||
Unrecognized tax benefits and associated accrued interest and penalties are included in income tax provision. The accrued liability recognized related to interest and penalties was $1.3 million and $1.1 million as of December 31, 2025 and 2024, respectively.
Sonic and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Sonic’s 2022 through 2025 U.S. federal income tax returns remain open to examination by the U.S. Internal Revenue Service. Sonic’s and its subsidiaries’ state income tax returns remain open to examination by state taxing authorities for years ranging from 2019 to 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 23, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 17, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 21, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 27, 2017 | |
| 2015 | Feb 26, 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.