SCANSOURCE, INC.SCSC
SCANSOURCE, INC. Income Taxes Disclosure
Income Taxes
As of the fiscal year ended June 30, 2025, the Company maintains the ability to access the earnings of foreign subsidiaries. The Company considered recording a deferred tax liability related to federal, state and withholding tax and determined that no liability should be recorded. There is no certainty as to the timing of the distributions of such earnings to the U.S. in whole or in part.
Income tax expense (benefit) consists of:
| Fiscal Year Ended June 30, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 12,736 | $ | 15,626 | $ | 25,034 | |||||||||||
| State | 3,805 | 3,608 | 6,455 | ||||||||||||||
| Foreign | 3,498 | 5,578 | 4,507 | ||||||||||||||
| Total current | 20,039 | 24,812 | 35,996 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 2,320 | (827) | (2,991) | ||||||||||||||
| State | (217) | (911) | (541) | ||||||||||||||
| Foreign | 706 | (293) | 1,294 | ||||||||||||||
| Total deferred | 2,809 | (2,031) | (2,238) | ||||||||||||||
| Provision for income taxes | $ | 22,848 | $ | 22,781 | $ | 33,758 | |||||||||||
A reconciliation is provided below of the U.S. Federal income tax expense for the fiscal years ended June 30, 2025, June 30, 2024 and June 30, 2023 with the applicable statutory rate of 21%.
| Fiscal Year Ended June 30, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| U.S. statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| U.S. Federal income tax at statutory rate | $ | 19,823 | $ | 20,967 | $ | 25,588 | |||||||||||
| Increase (decrease) in income taxes due to: | |||||||||||||||||
| State and local income taxes, net of Federal benefit | 2,788 | 1,939 | 4,559 | ||||||||||||||
| Tax credits | (573) | (1,794) | (909) | ||||||||||||||
| Valuation allowance | (445) | 1,131 | 1,087 | ||||||||||||||
| Effect of varying statutory rates in foreign operations, net | 1,382 | 2,109 | 2,751 | ||||||||||||||
| Stock compensation | (1,258) | (76) | 37 | ||||||||||||||
| Reduction in prior year transition tax | (2,065) | — | — | ||||||||||||||
| Earnings from foreign subsidiaries | 778 | 776 | 957 | ||||||||||||||
| Losses on dispositions | — | (2,816) | — | ||||||||||||||
| Global intangible low taxed income tax | 475 | (832) | 1,551 | ||||||||||||||
| Nontaxable income | (136) | (927) | (3,189) | ||||||||||||||
| Nondeductible compensation | 2,144 | 1,412 | 1,240 | ||||||||||||||
| Notional interest deduction on net equity | (928) | — | (733) | ||||||||||||||
| Other | 863 | 892 | 819 | ||||||||||||||
| Provision for income taxes | $ | 22,848 | $ | 22,781 | $ | 33,758 | |||||||||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
| June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Deferred tax assets derived from: | |||||||||||
| Allowance for accounts receivable | $ | 8,055 | $ | 7,787 | |||||||
| Inventories | 2,690 | 2,927 | |||||||||
| Nondeductible accrued expenses | 7,376 | 7,538 | |||||||||
| Net operating loss carryforwards | 268 | 243 | |||||||||
| Tax credits | 9,574 | 8,771 | |||||||||
| Deferred compensation | 6,984 | 7,706 | |||||||||
| Stock compensation | 4,186 | 4,490 | |||||||||
| Capital loss carryforwards | 11,579 | 12,306 | |||||||||
| Timing of amortization deduction from intangible assets | 7,675 | 6,680 | |||||||||
| Timing of depreciation and other deductions from building and equipment | 437 | — | |||||||||
| Total deferred tax assets | 58,824 | 58,448 | |||||||||
| Valuation allowance | (19,633) | (19,594) | |||||||||
| Total deferred tax assets, net of allowance | 39,191 | 38,854 | |||||||||
| Deferred tax liabilities derived from: | |||||||||||
| Timing of depreciation and other deductions from building and equipment | — | (724) | |||||||||
| Timing of amortization deduction from goodwill | (17,659) | (13,716) | |||||||||
| Timing of amortization deduction from intangible assets | (2,763) | (4,512) | |||||||||
| Total deferred tax liabilities | (20,422) | (18,952) | |||||||||
| Net deferred tax assets | $ | 18,769 | $ | 19,902 | |||||||
The components of pretax earnings are as follows:
| Fiscal Year Ended June 30, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Domestic | $ | 78,460 | $ | 78,653 | $ | 94,994 | |||||||||||
| Foreign | 15,936 | 21,188 | 26,856 | ||||||||||||||
| Worldwide pretax earnings | $ | 94,396 | $ | 99,841 | $ | 121,850 | |||||||||||
As of June 30, 2025, there were (i) gross net operating loss carryforwards of approximately $0.9 million for U.S. federal income tax purposes; (ii) gross state net operating loss carryforwards of approximately $1.1 million; (iii) state income tax credit carryforwards of approximately $3.8 million that began to expire in the 2024 tax year; (iv) withholding tax credits of approximately $5.5 million; (v) foreign tax credits of $1.1 million, and (vi) gross capital loss carryovers of $46.4 million. The Company maintains a valuation allowance of $0.1 million for U.S. federal net operating losses, $11.6 million for capital loss carryforwards, a less than $0.1 million valuation allowance for state net operating losses, a $5.5 million valuation allowance for withholding tax credits, a $1.1 million valuation allowance for foreign tax credits, and a $1.3 million valuation allowance for state income tax credits, where it was determined that, in accordance with ASC 740, it is more likely than not that they cannot be utilized.
The Company recognizes excess tax benefits and tax deficiencies as income tax expense or benefit for stock award settlements in accordance with ASU 2016-09. The Company recognized net tax benefit of $1.2 million for the fiscal year ended June 30, 2025, net tax expense of less than $0.1 million for the fiscal year ended June 30, 2024 and net tax benefit of less than $0.1 million for the fiscal year ended June 30, 2023.
As of June 30, 2025, the Company had gross unrecognized tax benefits of $0.7 million, $0.6 million of which, if recognized, would affect the effective tax rate. This reflects a decrease of $0.4 million on a gross basis over the prior fiscal year. The Company does not expect that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Income Statements. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets. The total amount of interest and penalties accrued, but excluded from the table below, were $1.0 million, $1.3 million and $1.2 million for the fiscal years ended June 30, 2025, 2024 and 2023, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| June 30, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Beginning Balance | $ | 1,141 | $ | 1,172 | $ | 1,065 | |||||||||||
| Additions based on tax positions related to the current year | 86 | 89 | 123 | ||||||||||||||
| Reduction for tax positions of prior years | (529) | (120) | (16) | ||||||||||||||
| Ending Balance | $ | 698 | $ | 1,141 | $ | 1,172 | |||||||||||
On August 26, 2024, the U.S. Tax Court issued an opinion in Varian Medical Systems, Inc. v. Commissioner. The opinion related to the U.S. taxation of deemed foreign dividends in the transition year of the Tax Cuts and Jobs Act (the company’s fiscal year 2018). While the company was not a party to the case, the opinion resulted in a change to its tax position, and as such recorded a tax benefit of $2.1 million as a reduction to the provision for income taxes in the June 30, 2025 fiscal year.
During the June 30, 2024 fiscal year, the Company received a favorable ruling in Brazil regarding an exclusion from taxable income and as a result recognized a $1.5 million income tax recovery for prior years. A court ruling in Brazil in June 2023 confirmed that Brazilian state-provided tax benefits are not subject to income tax and the Company recognized a tax benefit of $2.2 million during the June 30, 2023 fiscal year.
Subsequent to the 2023 fiscal year-end, the IRS issued Notice 2023-55 which provides taxpayers with Brazilian subsidiaries temporary relief from the final foreign tax credit regulations. As a result, the company recognized a tax benefit of $1.5 million during the 2024 fiscal year for creditable foreign taxes for the 2023 fiscal year.
The Company conducts business internationally and, as a result, one or more of its subsidiaries files income tax returns in the United States federal, various state, local and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in countries in which it operates. With certain exceptions, the Company is no longer subject to state and local, or non-United States income tax examinations by tax authorities for tax years before June 30, 2020.
On July 4, 2025, the One Big Beautiful Bill Act (“the Act”) was signed into law. The Act permanently extends key provisions of the Tax Cuts and Jobs Act, including 100% bonus depreciation, and introduces changes to the international tax framework. We are currently assessing the impact of the Act on our future effective tax rate, tax liabilities, and cash taxes.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 21, 2025 | Showing above |
| 2024 | Aug 27, 2024 | |
| 2023 | Aug 22, 2023 | |
| 2022 | Aug 23, 2022 | |
| 2021 | Aug 24, 2021 | |
| 2020 | Aug 31, 2020 | |
| 2019 | Aug 22, 2019 | |
| 2018 | Aug 28, 2018 | |
| 2017 | Aug 29, 2017 | |
| 2016 | Aug 29, 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.