SUPERIOR GROUP OF COMPANIES, INC. Income Taxes Disclosure

NOTE 11 – Income Tax Expense:

 

The components of income before income tax expense are as follows (in thousands):

 

		Years Ended December 31,
		2025				2024
Domestic		$	(8,220	)		$	(2,466	)
Foreign			16,466				16,760
Income before income tax expense		$	8,246			$	14,294

 

Aggregate income tax provision consists of the following (in thousands):

 

		Years Ended December 31,
		2025				2024
Current:
Federal		$	351			$	1,472
State and local			62				477
Foreign			1,679				1,922
			2,092				3,871
Deferred Taxes:
Deferred tax benefit			(846	)			(1,581	)
Income tax expense		$	1,246			$	2,290

 

The significant components of the deferred income tax asset are as follows (in thousands):

 

		December 31,
		2025				2024
Deferred income tax assets:
Pension accruals		$	3,795			$	3,414
Operating reserves and other accruals			11,836				9,077
Book carrying value in excess of tax basis of intangibles			766				1,808
Capitalized research expenses			2,476				3,502
Disallowed interest			692				736
Deferred income tax liabilities:
Book carrying value in excess of tax basis of property			(3,744	)			(4,123	)
Deferred expenses			(818	)			(579	)
Net deferred income tax asset		$	15,003			$	13,835

 

The current year difference between the total statutory Federal income tax rate and the actual effective income tax rate post implementation of ASU 2023-09 is accounted for as follows:

 

		Years Ended December 31, 2025
		Amount				Percent
US Federal Statutory Income Tax Rate:		$	1,732				21.0	%
Domestic Tax Effects(1)
Federal Tax Credits
General Business Credits			(324	)			(3.9	%)
Federal Nontaxable or Nondeductible Items
Stock Based Compensation			595				7.2	%
Qualified Benefit Plans			(425	)			(5.1	%)
Other			50				0.6	%
Effect of cross-border tax laws
GILTI Effects			900				10.9	%
Domestic State and local income taxes, net of federal effect			218				2.6	%
Changes in unrecognized tax benefits			177				2.2	%
Foreign Tax Effects:
Brazil
Statutory Income Tax Rate Differential			698				8.5	%
Belize
Statutory Income Tax Rate Differential			(849	)			(10.3	%)
El Salvador
Statutory Income Tax Rate Differential			(1,300	)			(15.8	%)
Haiti
Statutory Income Tax Rate Differential			(260	)			(3.1	%)
Other Foreign Jurisdictions			34				0.4	%
Changes in valuation allowances			17				0.2	%
Other Reconciling Items			(17	)			(0.3	%)
Effective income tax rate		$	1,246				15.1	%

(1) State taxes in Arkansas, California and Arizona made up the majority (greater than 50%) of the tax effect in this category.

 

The prior year difference between the total statutory Federal income tax rate and the actual effective income tax rate pre-implementation of ASU 2023-09 is accounted for as follows:

 

		Year Ended December 31, 2024
Statutory federal income tax rate			21.0	%
State and local income taxes, net of federal income tax benefit			4.5	%
Rate impacts due to foreign operations			(9.4	%)
Compensation related			1.9	%
General business credits			(3.4	%)
Other			1.4	%
Effective income tax rate			16.0	%

 

The effective tax rate is the result of a variety of factors, and is primarily dependent on our jurisdictional mix of earnings across the Company’s domestic and foreign operations as well as applicable statutory tax rates and unrealized gains and losses associated with share-based compensation.

 

The Tax Cuts and Jobs Act of 2017 (“TCJA”) included certain provisions that continue to affect our income taxes, which, among other things, include interest deduction limitations and global intangible low taxed income regulations (“GILTI”).

 

The 2025 reduction of overall interest expense along with the Company’s level of domestic income resulted in a current year interest expense deduction. The Company utilized a portion of its disallowed interest deferred tax asset, resulting in a favorable interest expense deduction. The remaining deferred tax assets associated with the disallowed interest expense have an indefinite life and do not expire. Management believes these deferred tax assets are more likely than not to be realized and therefore no valuation allowance has been recorded.

 

The TCJA imposed a U.S. tax on GILTI that is earned by certain foreign affiliates owned by a U.S. shareholder. The computation of GILTI is generally intended to impose tax on the earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment. In accordance with guidance issued by FASB, the Company made a policy election to treat future taxes related to GILTI as a current period expense in the reporting period in which the tax is incurred. Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines it no longer intends to permanently reinvest such earnings outside the United States. The Company expects to permanently reinvest the earnings from its wholly-owned Brazilian and UK subsidiaries, and accordingly, has not provided deferred taxes on the subsidiaries’ undistributed net earnings or basis differences. The Company believes that the tax liability that would be incurred upon repatriation of the earnings from its Brazilian and UK subsidiaries is immaterial at December 31, 2025.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted. The OBBBA included significant changes to the domestic and international tax provisions, such as modifications to the global tax framework, the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act of 2017, and the restoration of favorable tax treatment for certain business provisions. The legislation had multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The OBBBA did not result in any material adjustments to our total income tax provision for the year ended December 31, 2025, and we have adjusted our deferred tax balances to reflect the impacts of the OBBBA enactment. Given the complexity of tax laws, related regulations and interpretations, our current estimates may require revision as additional information becomes available regarding the application of the OBBBA provisions. We are closely monitoring the applicability of OBBBA provisions to the taxability of global earnings and the overall impact that it may have on the company’s financial and tax results as these provisions come into effect through 2027.

 

Only tax positions that meet the more-likely-than-not recognition threshold are recognized in the financial statements. As of December 31, 2025 and 2024, we had $0.9 million and $0.9 million of unrecognized tax benefits, all of which, if recognized, would favorably affect the annual effective income tax rate. 

 

Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):

 

		December 31,
		2025				2024
Balance at the beginning of year		$	911			$	796
Additions for tax positions of prior years			281				217
Reductions due to lapse of statute of limitations			(261	)			(102	)
Balance at the end of year		$	931			$	911

 

We recognize interest and penalties associated with the unrecognized tax benefit as part of the income tax provision and include accrued interest and penalties with the related reserve in other long-term liabilities in our consolidated balance sheets. During the years ended December 31, 2025 and 2024 there was no significant reduction to the liability for interest and penalties due to any lapses in statute of limitations. At December 31, 2025 and 2024, we had $0.5 million and $0.3 million, respectively, accrued for interest and penalties, net of tax benefit.

 

The Company evaluates all domestic and foreign audit issues and believes that it is reasonably possible that total gross unrecognized tax benefits will not significantly change within the next 12 months.

 

As a global organization, we file a U.S. federal income tax return as well as income tax returns in various states, and in non U.S. jurisdictions. As of December 31, 2025, the statute of limitations for the U.S. federal tax years 2021 through 2024 remain open to examination. For U.S. state and local jurisdictions tax years 2019 through 2024 are open to examination. We are also subject to examination in various foreign jurisdictions for tax years 2019 through 2024.

 

The Company is both a domestic and foreign income tax payer. The amount of cash income taxes paid net of refunds received are as follows (in thousands):

 

		Year Ended December 31, 2025
US Federal:		$	-
US State and Local:
Michigan			113
New Jersey			362
Pennsylvania			132
Other			303
Total Domestic			910
Foreign:
Brazil			674
Other			39
Total Foreign			713
Total net cash taxes paid		$	1,623