Shoals Technologies Group, Inc.SHLS
Shoals Technologies Group, Inc. Income Taxes Disclosure
Income Taxes
The components of income before income taxes are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 48,518 | $ | 37,863 | $ | 54,935 | |||||||||||
| Foreign | — | — | — | ||||||||||||||
| Income before income taxes | $ | 48,518 | $ | 37,863 | $ | 54,935 | |||||||||||
The components of income tax expense are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current income taxes: | |||||||||||||||||
| Federal | $ | — | $ | 11 | $ | — | |||||||||||
| State | (1,188) | (310) | 915 | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total current income taxes | (1,188) | (299) | 915 | ||||||||||||||
| Deferred income taxes: | |||||||||||||||||
| Federal | 13,338 | 10,890 | 10,146 | ||||||||||||||
| State | 2,794 | 3,145 | 1,188 | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total deferred income taxes | 16,132 | 14,035 | 11,334 | ||||||||||||||
| Other tax expense | — | — | 25 | ||||||||||||||
| Income tax expense | $ | 14,944 | $ | 13,736 | $ | 12,274 | |||||||||||
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the prospective adoption of ASU 2023-09 is as follows:
| Year Ended December 31, | ||||||||||||||
| 2025 | ||||||||||||||
| U.S. Federal Statutory Tax Rate | $ | 10,189 | 21.0 | % | ||||||||||
State and Local Income Taxes, Net of Federal Income Tax Effect (a) | 1,855 | 3.8 | % | |||||||||||
| Changes in Valuation Allowances | (48) | (0.1) | % | |||||||||||
| Nontaxable or Nondeductible Items | ||||||||||||||
| Equity Compensation | 2,051 | 4.2 | % | |||||||||||
| Other | 529 | 1.1 | % | |||||||||||
| Other Adjustments | 368 | 0.8 | % | |||||||||||
| Effective Tax Rate | $ | 14,944 | 30.8 | % | ||||||||||
(a) The state taxes in Texas made up the majority (greater than 50 percent) of the tax effect in this category.
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes prior to the adoption of ASU 2023-09 is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| U.S. federal income taxes at statutory rate | $ | 7,951 | $ | 11,537 | |||||||
| State and local income tax, net of federal benefit | 787 | 1,811 | |||||||||
| Permanent tax adjustments | 146 | 101 | |||||||||
| Equity-based compensation | 1,764 | 447 | |||||||||
| Non-deductible officers' compensation | 343 | 968 | |||||||||
| Non-controlling interests | — | (564) | |||||||||
| Termination of Up-C structure | — | (2,347) | |||||||||
| Change in valuation allowance | 2,112 | 988 | |||||||||
| Other | 633 | (667) | |||||||||
| Income tax expense | $ | 13,736 | $ | 12,274 | |||||||
The components of the deferred tax assets and liabilities are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Inventory, net | 1,157 | 1,203 | |||||||||
| Property, plant & equipment, net | 170 | 728 | |||||||||
Goodwill (1) | 385,586 | 419,088 | |||||||||
| Accrued expenses and other | 943 | 793 | |||||||||
| Warranty liability | 128 | 9,573 | |||||||||
| Net operating loss | 55,562 | 27,269 | |||||||||
| Equity-based compensation | 1,434 | 2,559 | |||||||||
| 163(j) business interest expense | 2,648 | 3,039 | |||||||||
| Other | 11,229 | 2,510 | |||||||||
| Total deferred tax assets | 458,857 | 466,762 | |||||||||
| Less valuation allowance | (3,043) | (3,100) | |||||||||
| Total deferred tax assets, net | 455,814 | 463,662 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Other intangible assets, net | (7,078) | (8,872) | |||||||||
| Other | (10,709) | (630) | |||||||||
| Total deferred tax liabilities | (17,787) | (9,502) | |||||||||
| Net deferred tax asset | $ | 438,027 | $ | 454,160 | |||||||
(1) Goodwill represents the excess of tax-deductible goodwill over book goodwill of $1,658 million as of December 31, 2025, and $1,795 million as of December 31, 2024, which is mainly related to the step-up in tax basis resulting from exchanges of LLC Interests for shares of Class A common stock.
During the year ended December 31, 2023, the Company acquired the remaining non-controlling interest in Shoals Parent LLC and contributed 100% of its interest to its wholly-owned subsidiary Shoals Intermediate Parent, thereby eliminating the Company’s Up-C structure. As a result of the contribution, Shoals Parent LLC ceased to be treated as a partnership for U.S. federal income tax purposes and became a single-member disregarded entity. Accordingly, the Company converted its outside basis differences in its investment in Shoals Parent LLC and remeasured its deferred taxes using the inside basis differences of Shoals Parent LLC’s assets and liabilities. The conversion from outside to inside basis differences resulted in a net deferred tax benefit of approximately $5.1 million, which has been recorded in the accompanying consolidated statement of operations for the year ended December 31, 2023.
As of December 31, 2025, the Company has $235.9 million and $121.7 million federal and state net operating loss carryforwards, respectively. If not utilized, $235.9 million of the federal net operating loss can be carried forward indefinitely. If not utilized, $27.0 million of the state net operating loss can be carried forward indefinitely and $94.7 million will expire between 2033-2045.
In the prior year, the Company recorded a valuation allowance related to its state net operating loss carryforwards and goodwill amortization in the amount of $2.1 million, as it is more likely than not these deferred tax assets would not be realized. As of December 31, 2025, the Company’s assessment of the valuation allowance resulted in an insignificant adjustment in the current year. The valuation allowance mainly derives from states with shortened net operating loss carryforward periods. Additionally, since goodwill amortization is the primary contributor to the net operating losses, it must be considered in the analysis, as the net operating loss carryforwards will expire before the benefit of the goodwill amortization is fully realized in
certain states. As of December 31, 2023, the Company determined that a valuation allowance related to land and other non-amortizable intangibles in the amount of $1.0 million was required, as it is more likely than not these deferred tax assets would not be realized. As of December 31, 2025, an insignificant amount of the valuation allowance was released due to the disposal of land. The federal and state valuation allowance is $0.9 million and $2.1 million, respectively, for a total valuation allowance of $3.0 million as of December 31, 2025.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law. OBBBA includes significant changes to U.S. federal income tax law, including modifications to the 2017 Tax Cuts and Jobs Act and 2022 Inflation Reduction Act provisions. The law made changes to certain business deductions and credits, and new limitations and incentives affecting capital investment and clean energy. As of December 31, 2025, OBBBA had minimal impact on the Company’s tax position. Given the complexities, including recently issued guidance from the Internal Revenue Service and regulations from the U.S. Treasury Department, we will continue to monitor these developments and evaluate the potential future impact to our results of operations.
As of December 31, 2025 and 2024, the Company has recorded $0.7 million and $1.0 million, respectively, of gross unrecognized tax benefits inclusive of interest and penalties, all of which, if recognized, would favorably impact the effective tax rate. We do not expect a significant change in our uncertain tax benefits in the next twelve months. The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying consolidated statements of operations.
We are generally subject to tax examinations by U.S. federal and state tax authorities for years beginning after 2021 and 2020, respectively.
The table below provides the updated requirements of ASU 2023-09 for cash paid for income taxes, net of refunds.
| Year Ended December 31, | |||||
| 2025 | |||||
| Cash paid for income taxes, net of refunds | |||||
| U.S. Federal | $ | — | |||
| U.S. State and Local | |||||
| Minnesota | (10) | ||||
| Tennessee | (173) | ||||
| Other | — | ||||
| Foreign | — | ||||
| Total cash paid during the period for income taxes | $ | (183) | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Mar 11, 2022 | |
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.