SPAR Group, Inc. Income Taxes Disclosure

5. Income Taxes 

 

Income Taxes

 

On July 4, 2025, President Donald J. Trump enacted legislation officially titled “An Act to provide for reconciliation pursuant to title II of H.Con. Res. 14”—commonly known as the One Big Beautiful Bill Act (OBBBA). The bill implemented three main changes to business taxes: 1. 100% bonus depreciation has been reinstated for assets placed in service after January 19, 2025, 2. The deduction for domestic section 174 expenses has been permanently restored and unamortized domestic costs from tax years 2022-2024 may be deducted in 2025 or split between 2025 and 2026, and 3. The addbacks for depreciation, amortization, and depletion when calculated adjusted taxable income for purposes of section 163(j) have been permanently restored. The Company has concluded to continue to capitalize and amortize their domestic section 174 expenses.

 

Loss from continuing operations before income taxes is summarized as follows (in thousands):

		Year Ended December 31,
			2025				2024
Domestic		$	(21,131	)		$	668
Foreign			578				(2,330	)
Total:		$	(20,553	)		$	(1,662	)

 

The income tax expense from continuing operations is summarized as follows (in thousands):

		Year Ended December 31,
		2025				2024
Current tax expense:
Federal		$	-			$	21
Foreign			457				1,401
State and local			(203	)			222
Total current tax expense			254				1,644
Deferred tax expense (benefit):
Federal			3,425				(1,196	)
Foreign			-				(114	)
State and local			394				(190	)
Total deferred tax expense (benefit)			3,819				(1,500	)
Total income tax expense:
Federal			3,425				(1,175	)
Foreign			457				1,287
State and local			191				32
Total income tax expense		$	4,073			$	144

 

The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows (in thousands):

		Year Ended December 31,
		2025				Rate
US federal statutory tax rate		$	(4,316	)			21.0	%
State and local income taxes, net of federal income tax effect (1)			210				(1.0	%)
Foreign Tax Effects:
Foreign tax rate differential			32				(0.2	%)
Effect of cross-border tax laws			526				(2.6	%)
Tax credits			-				0.0	%
Changes in valuation allowance			6,927				(33.7	%)
Nontaxable or nondeductible items:
Executive compensation disallowed under Section 162(m)			654				(3.2	%)
Other permanent differences			136				(0.7	%)
Other adjustments:
Return to provision			68				(0.3	%)
Other			(164	)			0.8	%
Effective Tax Rate:		$	4,073				(19.8	%)
(1) State taxes in Illinois, Texas, Michigan, and California for 2025 made up the majority (greater than 50 percent) of the tax effect in this category.

 

 

 

SPAR Group, Inc. and Subsidiaries 
Notes to Consolidated Financial Statements (continued)

 

5. Income Taxes (continued)

		Year Ended December 31,
		2024				Rate
(in thousands)
Provision for income taxes at federal statutory rate		$	(349	)			21.0	%
State income taxes, net of federal benefit			32				(1.9	%)
Permanent differences			(136	)			8.2	%
Section 162(m) adjustment			245				(14.7	%)
Return to provision adjustment			(10	)			0.6	%
Foreign tax rate differential			(288	)			17.3	%
GILTI tax			284				(17.1	%)
Sale of foreign entities			(369	)			22.2	%
Transaction costs			118				(7.1	%)
Withholding tax			1,046				(62.9	%)
Subpart F Income			213				(12.8	%)
Foreign tax credit			(556	)			33.5	%
Foreign disregarded income			292				(17.6	%)
Change in valuation allowance			(2	)			0.1	%
Discontinued operations SG&A allocation			(430	)			25.9	%
Other			54				(3.3	%)
Net expense		$	144				(8.7	%)

 

Components of income taxes paid, net of refunds consist of the following (in thousands):		Year Ended December 31,
		2025
Federal		$	15
State
Indiana			14
Mississippi			8
New Jersey			8
North Carolina			14
Pennsylvania			23
Texas			53
Other U.S. States			14
Foreign			-
Total		$	149

 

Deferred taxes from continuing operations consist of the following (in thousands):		December 31,
		2025				2024
Deferred tax assets:
Net operating loss carryforwards		$	4,693			$	389
Federal research and development credit			240				164
Foreign withholding tax			796				872
Accrued payroll			110				4
Transaction costs			–				753
Allowance for credit losses and other receivable			–				93
Share-based compensation expense			250				258
Business interest limitation			1,237				889
Operating lease liability			1,134				128
Capitalized software development costs			–				277
Other			695				891
Total deferred tax assets, gross			9,155				4,718
Valuation allowance			(7,622	)			-
Total deferred tax assets			1,533				4,718
Deferred tax liabilities:
Goodwill & intangible assets of subsidiaries			334				291
Allowance for credit losses and other receivable			2				-
Right to use asset			1,094				127
Capitalized software development costs			28				-
Depreciation			91				41
Total deferred tax liabilities			1,549				459
Net deferred income taxes		$	(16	)		$	4,259

 

As of December 31, 2025, the Company’s deferred tax assets were primarily the result of the business interest limitation and net operating losses. The Company has gross U.S. Federal NOL carryforwards of $20.6 million and tax effected amount of $4.3 million. $20.0 million of the U.S Federal NOL carryforward has no expiration date. The remaining $0.6 million has expiration dates beginning in 2026 through 2035. The Company has a U.S. State NOL deferred tax asset of $0.4 million of varying expiration dates from 2025 to 2041. The Company has $0.2 million of U.S. Research and Development credits with expiration dates ranging from 2031 to 2035. The Company has $0.8 million of U.S. foreign tax credits with expiration dates ranging from 2033 to 2034.

 

SPAR Group, Inc. and Subsidiaries 
Notes to Consolidated Financial Statements (continued)

5. Income Taxes (continued)

 

A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized in a particular tax jurisdiction. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a deferred tax asset. Judgement must be used in considering the relative impact of negative and positive evidence. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2025.  Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Based on the weight of the available evidence, the Company provided a valuation allowance against its US and state deferred tax assets. The valuation allowance was $7.6 million and $0.0 million as of December 31, 2025 and 2024 respectively. A valuation allowance was not provided for the foreign deferreds.

 

(in thousands):		2025				2024
Valuation allowance, beginning of year		$	-			$	-
Income tax expense:
Decrease/(increase) in valuation allowance			(7,622	)			-
Valuation allowance, end of year		$	(7,622	)		$	-

 

A reconciliation of the beginning and ending amount of uncertain tax position reserves is as follows (in thousands):

		Year Ended December 31,
			2025				2024
Beginning balance		$	114			$	54
Additions based on tax positions related to the current year			43				60
Ending balance		$	157			$	114

 

The provision for income taxes includes the impact of uncertain tax position reserves and changes to reserves that are considered appropriate. As of December 31, 2025, included in the balance of uncertain tax position reserves are $0.16 million of reserves that, if recognized, would affect the effective rate of income from continuing operations. Interest and penalties that the tax law requires to be paid on the underpayment of taxes should be accrued on the difference between the amount claimed or expected to be claimed on the return and the tax benefit recognized in the financial statements. The Company's policy is to record this interest and penalties as additional tax expense. We accrued penalties of $0.6 thousand and interest of $3 thousand during 2025 and in total, as of December 31, 2025 recognized a liability related to the uncertain tax position reserves noted above for penalties of $16 thousand and interest of $23 thousand. During 2024, we accrued penalties of $0.8 thousand and interest of $3 thousand and in total, as of December 31, 2024, recognized a liability of penalties of $16 thousand and interest of $20 thousand. 

 

In management's view, the Company's tax reserves at December 31, 2025 and 2024, for potential domestic state tax liabilities were sufficient.

 

SPAR and its subsidiaries file numerous consolidated, combined and separate company income tax returns in the U.S. Federal jurisdiction and in many U.S. states and foreign jurisdictions. With few exceptions, SPAR is subject to U.S. Federal, state and local income tax examinations for the years 2022 through the present. Foreign entities are subject to tax audits that vary based on jurisdiction. However, tax authorities have the ability to review years prior to the position taken by the Company to the extent that SPAR utilized tax attributes carried forward from those prior years.