Shake Shack Inc.SHAK

Shake Shack Inc. Income Taxes Disclosure

10-KFiled Feb 26, 20268 min read
INCOME TAXES
Shake Shack is the sole managing member of SSE Holdings, which is classified as a partnership for U.S federal and most applicable state and local income tax purposes. As the managing member, the Company consolidates SSE Holdings financial results. As a partnership, SSE Holdings is not subject to U.S. federal and certain state and local income taxes. Instead, any taxable income or loss generated by SSE Holdings is allocated to its members, including the Company, on a pro rata basis. The Company is subject to U.S. federal, state and local income taxes with respect to its allocable share of taxable income or loss from SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc. The Company is also subject to withholding taxes in foreign jurisdictions.
Income Tax Expense
The components of Income before income taxes were as follows:
202520242023
Domestic$18,469 $(18,247)$(13,427)
Foreign54,140 32,491 30,407 
Income before income taxes$72,609 $14,244 $16,980 
The components of Income tax expense (benefit) were as follows:
202520242023
Current income taxes:
State and local$3,155 $554 $1,271 
Foreign3,132 3,924 3,793 
Total current income taxes6,287 4,478 5,064 
Deferred income taxes:
Federal10,237 (2,731)(12,427)
State and local6,379 1,677 3,353 
Total deferred income taxes16,616 (1,054)(9,074)
Income tax expense (benefit)$22,903 $3,424 $(4,010)
A reconciliation of Income tax expense (benefit) computed at the U.S. federal statutory income tax rate to the recognized Income tax expense (benefit) and the U.S. statutory income tax rate to our effective tax rate after the adoption of ASU 2023-09 was as follows:
2025
Expected U.S. federal income taxes at statutory rate$15,248 21.0 %
State and local income taxes, net of federal benefit (1)
8,216 11.3 %
Foreign Tax Effects:
Foreign withholding taxes3,052 4.2 %
Tax credits:
Federal employer tip credit
(2,613)(3.6)%
Other credits
(1,490)(2.1)%
Non-taxable or non-deductible items:
Non-deductible compensation
926 1.3 %
Equity-based compensation
(1,461)(2.0)%
Other
1,341 1.8 %
Changes in unrecognized tax benefits
14 — %
Other(330)(0.4)%
Income tax expense (benefit)
$22,903 31.5 %
(1)For fiscal 2025, the states and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include New York State and City.
Reconciliations of Income tax expense (benefit) computed at the U.S. federal statutory income tax rate to the recognized Income tax expense (benefit) and the U.S. statutory income tax rate to our effective tax rates before the adoption of ASU 2023-09 were as follows:
20242023
Expected U.S. federal income taxes at statutory rate$2,991 21.0 %$3,565 21.0 %
State and local income taxes, net of federal benefit2,166 15.2 %2,090 12.3 %
Foreign withholding taxes3,924 27.6 %3,792 22.3 %
Tax credits(7,033)(49.4)%(7,060)(41.6)%
Non-controlling interest(166)(1.2)%(196)(1.2)%
Non-deductible expenses2,240 15.7 %1,169 6.9 %
Reserve for uncertain tax positions
— — %154 0.9 %
Remeasurement of deferred tax assets in connection with other tax rate changes392 2.8 %1,547 9.1 %
Return to provision adjustment
(650)(4.6)%(519)(3.0)%
Change in valuation allowance(97)(0.7)%(9,195)(54.1)%
Other(343)(2.4)%643 3.8 %
Income tax expense (benefit)
$3,424 24.0 %$(4,010)(23.6)%
Shake Shack's effective income tax rates for fiscal 2025, fiscal 2024 and fiscal 2023 were 31.5%, 24.0% and (23.6)%, respectively. The increase in the effective income tax rate from fiscal 2024 to fiscal 2025 was primarily driven by foreign tax credits that are not expected to be realized and the remeasurement of deferred tax assets following the filing of the Company’s 2024 tax returns.
The following table sets forth the total income taxes paid, net of refunds after the adoption of ASU 2023-09:
2025
U.S. state and local:
New York
$609 
Tennessee
282 
Other
237 
Total U.S. state and local
1,128 
Foreign:
China
511 
Mexico
327 
Philippines
220 
Singapore
220 
South Korea
737 
Other
1,117 
Total foreign
3,132 
Total
$4,260 

Before to the adoption of ASU 2023-09, income taxes paid, net of refunds for fiscal 2024 and fiscal 2023 were $6,531 and $4,056, respectively.
Deferred Tax Assets and Liabilities
The components of deferred tax assets and liabilities were as follows:
December 31
2025		December 25
2024
Deferred tax assets:
Investment in partnership$74,094 $89,397 
Tax Receivable Agreement66,053 67,192 
Operating lease liability6,281 5,264 
Financing lease liability159 124 
Deferred revenue251 209 
Equity-based compensation423 357 
Net operating loss carryforwards146,137 148,700 
Tax credits34,731 33,643 
Other assets1,117 1,772 
Total gross deferred tax assets329,246 346,658 
Valuation allowance(980)(260)
Total deferred tax assets, net of valuation allowance328,266 346,398 
Deferred tax liabilities:
Property and equipment(652)(537)
Operating lease right-of-use asset (5,064)(4,147)
Financing lease right-of-use asset (152)(119)
Other liabilities(13)(9)
Total gross deferred tax liabilities(5,881)(4,812)
Net deferred tax assets$322,385 $341,586 
As of December 31, 2025, the Company's federal and state net operating loss carryforwards for income tax purposes were $606,837 and $370,203, respectively. Of the federal net operating loss carryforwards, $554,970 can be carried forward indefinitely, while the remaining $51,867 will begin to expire in 2035. Similarly, of the state net operating loss carryforwards, $48,536 can be carried forward indefinitely, while the remaining $321,667 will begin to expire in 2026. As of December 31, 2025, the Company had federal tax credit carryforwards, including a capital loss carryforward of $33,871, which will begin to expire in 2026 and gross state tax credit carryforwards of $1,175, which will begin to expire in 2030.
As described in Note 12, Non-controlling Interests, the Company acquired a total of 186,213 LLC Interests during fiscal 2025 through LLC Interest redemptions and stock-based compensation plan activity. Upon acquiring these LLC Interests, the Company recognized a deferred tax asset of $1,279 related to the basis difference in its investment in SSE Holdings. As of December 31, 2025, the total deferred tax asset associated with the basis difference was $74,094.
The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of December 31, 2025, the Company concluded, based on the valuation of all available positive and negative evidence, that all of its deferred tax assets are more likely than not to be realized, except certain state credits and state net operating losses that are not expected to be utilized before expiration. Accordingly, the Company maintained a valuation allowance of $980. The net change in valuation allowance for fiscal 2025 was an increase of $720.
New Tax Legislation
On July 4, 2025, bill H.R. 1, commonly referred to as the "One Big Beautiful Bill Act" or "OBBBA," was signed into law, with certain provisions effective in 2025 and others in 2026. The Act provides for changes to U.S. federal tax law, including the
expensing of U.S. research expenditures and certain eligible capital expenditures, among other provisions. We have recognized the effects of the OBBBA provisions in our financial results to the extent they are applicable to the 2025 tax year.
Uncertain Tax Positions
Pursuant to ASC 740, the Company provides for uncertain tax positions based upon our assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. In 2025, no new uncertain tax positions were identified. Reconciliations of the beginning to the ending accounts of gross unrecognized tax benefits for fiscal 2025, fiscal 2024, and fiscal 2023 were as follows:

202520242023
Beginning balance
$147 $147 $— 
Additions for tax positions of prior years
— — 263 
Settlements
— — (116)
Ending balance
$147 $147 $147 
The Company files U.S. federal, state and local, and foreign tax returns. Generally, the Company's state and local income tax returns from 2018 to 2024 remain open to examination. The Company’s foreign income tax returns generally remain open to examination for the 2019 through 2024 tax years. Statutes of limitation in the United States and various state and foreign jurisdictions are generally three to six years from the date of filing but may be extended in certain circumstances, including when tax attributes such as net operating losses and tax credit carryforwards are involved. Tax authorities may also review returns for years otherwise closed by statute to adjust related tax attributes arising in prior years.
Tax Receivable Agreement
Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company expects to obtain an increase in its share of the tax basis in the net assets of SSE Holdings when LLC Interests are redeemed or exchanged by the other members of SSE Holdings. The Company plans to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interest occurs. The Company intends to treat any redemptions and exchanges of LLC Interests as direct purchases of LLC Interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that would otherwise be paid in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
On February 4, 2015, the Company entered into a tax receivable agreement with certain then-existing non-controlling members of SSE Holdings (the "Tax Receivable Agreement"). This agreement obligates the Company to pay the non-controlling interest holders 85% of any tax benefits that the Company may actually realize, or deemed to realize, from (i) increases in the Company's share of the tax basis of SSE Holdings due to redemptions or exchanges of LLC Interests, (ii) tax basis increases resulting from payments made under the Tax Receivable Agreement, and (iii) deductions from imputed interest under the agreement (the "TRA Payments"). The Company expects to benefit from the remaining 15% of any realized tax benefits. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or us. Additionally, the rights of each non-controlling interest holder under the Tax Receivable Agreement, are assignable to transferees of its LLC Interests.
During fiscal 2025, the Company acquired a total of 20,924 LLC Interests in connection with the redemption of LLC Interests, which led to an increase in the tax basis of its investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. The Company recognized an additional asset of $1,279 for the TRA Payments due to the redeeming members, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemption of LLC Interests. This estimate was based on our conclusion that it was probable that such TRA Payments would be made, considering our projections of future taxable income. During fiscal 2025 payments of $37, inclusive of interest, were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement. No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement in fiscal 2024. As of December 31, 2025, the total amount of TRA Payments due under the Tax Receivable Agreement was $246,835, of which $2,372 amount was included in Other current liabilities on the Consolidated Balance Sheets.

Historical Timeline

Fiscal YearFiled
2025Feb 26, 2026Showing above
2016Mar 13, 2017
2015Mar 30, 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.

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