SkyWater Technology, IncSKYT
SkyWater Technology, Inc Income Taxes Disclosure
Income Taxes
The components of income tax (benefit) expense are as follows:
Fiscal Year Ended | |||||||||||
| December 28, 2025 | December 29, 2024 | ||||||||||
| Current: | |||||||||||
| Federal | $ | — | $ | 249 | |||||||
| State | (40) | 39 | |||||||||
| Total current tax (benefit) expense | (40) | 288 | |||||||||
| Deferred: | |||||||||||
| Federal | (23,456) | (303) | |||||||||
| State | (4,493) | 255 | |||||||||
| Total deferred tax benefit | (27,949) | (48) | |||||||||
| Income tax (benefit) expense | $ | (27,989) | $ | 240 | |||||||
A reconciliation between the income tax provision and the amount computed by applying the statutory federal tax rate of 21% to loss before income taxes is as follows:
| Fiscal Year Ended | |||||||||||
| December 28, 2025 | December 29, 2024 | ||||||||||
| Taxes at U.S. statutory tax rate | $ | 20,046 | $ | (478) | |||||||
| State income taxes, net of federal income tax benefit | 3,288 | (337) | |||||||||
| Permanent differences | 307 | 371 | |||||||||
| Bargain purchase gain | (27,546) | — | |||||||||
| Federal tax credits | (653) | (607) | |||||||||
Tax reserves | 121 | 440 | |||||||||
Return to provision adjustments | 293 | (349) | |||||||||
| Remeasurement of deferred tax assets and liabilities | 205 | (442) | |||||||||
| Change in valuation allowance | (23,192) | 2,215 | |||||||||
| Equity-based compensation | 74 | 329 | |||||||||
| Non-deductible executive compensation | 101 | 224 | |||||||||
| Non-controlling interest | (1,095) | (1,100) | |||||||||
| Other | 62 | (26) | |||||||||
| Income tax (benefit) expense | $ | (27,989) | $ | 240 | |||||||
| Effective income tax rate | (29.3)% | (10.5)% | |||||||||
The Company’s effective tax rates for the fiscal years ended December 28, 2025, and December 29, 2024 differ from the statutory tax rates primarily due to bargain purchase gain, change in valuation allowance, state income taxes, permanent tax differences and tax credits. The tax rate in any period can be affected positively or negatively by adjustments that are required to be reported in the specific period of resolution.
The significant components of deferred tax assets and liabilities are reflected in the following table:
| December 28, 2025 | December 29, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Deferred compensation and accrued vacation | $ | 966 | $ | 179 | |||||||
| Deferred revenue | 9,030 | 13,313 | |||||||||
| Financing lease | 9,129 | 9,769 | |||||||||
| Net operating loss and credit carryforwards | 33,919 | 13,280 | |||||||||
| Off-market component of supply agreement | 23,601 | — | |||||||||
| Inventory | 4,952 | 3,765 | |||||||||
| Equity-based compensation | 2,707 | 2,240 | |||||||||
| Research and development expense | 6,601 | 13,290 | |||||||||
| Interest expense limitation | 4,880 | 4,265 | |||||||||
| Lease liability | 4,518 | 2,028 | |||||||||
| Other | 527 | 1,782 | |||||||||
| Gross deferred tax assets | 100,830 | 63,911 | |||||||||
| Valuation allowance | (5,018) | (28,210) | |||||||||
| Net deferred tax asset after valuation allowance | 95,812 | 35,701 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property and equipment | (101,463) | (35,109) | |||||||||
| Prepaids and other | (718) | (1,224) | |||||||||
| Total deferred tax liabilities | (102,181) | (36,333) | |||||||||
| Net deferred tax liability | $ | (6,369) | $ | (632) | |||||||
Based on the Company’s analysis of all positive and negative evidence available for the year ended December 28, 2025, the Company concluded it is more likely than not that the majority of the U.S. federal and U.S. states net deferred tax assets will be realizable. The Company considered the reversal of taxable temporary differences to determine the appropriate valuation allowance. Accordingly, the company recognized a non-recurring tax benefit of $23,200 for the year ended December 28, 2025, and this change mainly resulted from the taxable temporary differences recorded from the Fab 25 acquisition. As of December 28, 2025, $5,018 of our valuation allowance remained against certain tax attributes.
On July 4, 2025, the enactment of the One Big Beautiful Bill Act ("OBBBA") into law, marked a significant legislative development, resulting in substantial modifications to the U.S. tax code. The OBBBA influences multiple facets of taxation, including, but not limited to, bonus depreciation, the current-year expensing of research and development costs, interest limitations and changes increasing the Section 48D refundable tax credit for semiconductor manufacturing facilities from 25% to 35% for property placed in service after 2025. The income taxes reported for the year ended December 31, 2025 incorporates all relevant tax provisions of this new law.
The Company had $31,887 and $11,647 of tax-effected federal and state net operating loss carryforwards as of December 28, 2025 and December 29, 2024, respectively. Federal net operating loss carryforwards do not expire. Federal net operating loss carryforwards are subject to limitation of 80% of taxable income in any given tax year beginning after January 31, 2020. The Company's state net operating loss carryforwards will expire over various periods through 2043 and most are not subject to the aforementioned limitation. The Company also had gross R&D credit carryforwards of $2,709, which will expire between 2034 and 2040.
The Company is currently under examination by the Internal Revenue Service for its tax year ended December 31, 2023, and by the Minnesota Department of Revenue for fiscal years 2019-2022.There have been no proposed adjustments as of year-end. The Company’s tax returns are open to examination for the years 2019 through 2024.
The tax effects from uncertain tax positions can be recognized in our consolidated financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Included in the balance of unrecognized tax benefits as of December 28, 2025 are $380 of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits as of December 28, 2025, are $150 of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes and valuation allowance. The following tables set forth changes in our total gross unrecognized tax liabilities, excluding accrued interest, as of and for the year ended December 28, 2025:
| Balance at December 29, 2024 | $ | 440 | |||
Tax Positions - Additions | 90 | ||||
Tax Positions - Reductions | — | ||||
| Balance at December 28, 2025 | $ | 530 | |||
The Company accrues income tax-related interest and penalties, as applicable, in income tax expense in its consolidated statements of operations. No interest and penalties were incurred during the fiscal years ended December 28, 2025, and December 29, 2024 as the accrued interest was not significant. The Company does not anticipate significant changes in its uncertain tax position over the next 12 months.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 11, 2026 | Showing above |
| 2024 | Mar 14, 2025 | |
| 2023 | Mar 15, 2024 | |
| 2022 | Mar 10, 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.