SM Energy CoSM
SM Energy Co Income Taxes Disclosure
Note 4 – Income Taxes
Effective January 1, 2025, the Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments were applied prospectively and primarily affect the Company’s annual income tax disclosures, including enhanced effective tax rate reconciliation and income taxes paid information, as presented below.
The provision for income taxes consisted of the following:
| For the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Current portion of income tax (expense) benefit | |||||||||||||||||
| Federal | $ | 2 | $ | (18) | $ | (8) | |||||||||||
| State | (6) | (3) | — | ||||||||||||||
| Deferred portion of income tax expense | (178) | (175) | (88) | ||||||||||||||
| Income tax expense | $ | (182) | $ | (196) | $ | (96) | |||||||||||
The components of the net deferred tax liabilities are as follows:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
(in millions) | |||||||||||
| Deferred tax liabilities: | |||||||||||
Oil and gas properties excluding asset retirement obligation | $ | 792 | $ | 596 | |||||||
| Derivative assets | 19 | 8 | |||||||||
| Other | 8 | 6 | |||||||||
| Total deferred tax liabilities | 819 | 611 | |||||||||
| Deferred tax assets: | |||||||||||
| Asset retirement obligation liabilities | 35 | 33 | |||||||||
| Credit carryover, net | 44 | 19 | |||||||||
| Lease liabilities | 6 | 4 | |||||||||
| Legal liabilities | 3 | 3 | |||||||||
| Federal and state tax net operating loss carryovers | 3 | 3 | |||||||||
Equity compensation | 3 | 2 | |||||||||
| Other | 2 | 3 | |||||||||
| Total deferred tax assets | 96 | 67 | |||||||||
| Valuation allowance | (1) | (1) | |||||||||
| Net deferred tax assets | 95 | 66 | |||||||||
| Net deferred tax liabilities | $ | 724 | $ | 545 | |||||||
| Current federal income tax refundable (payable) | $ | — | $ | 2 | |||||||
| Current state income tax refundable (payable) | $ | 2 | $ | — | |||||||
____________________________________________
Note: Amounts may not calculate due to rounding.
As of December 31, 2025, the Company had gross state NOL carryforwards of $67 million. Other than in states with no NOL carryforward expiration, the Company’s state NOL carryforwards expire between 2035 and 2039. The Company’s current valuation allowance includes an amount for state NOL carryforwards, which are expected to expire before they can be utilized.
Income tax expense or benefit differs from the amount that would be calculated by applying the statutory United States federal income tax rate to income or loss before income taxes. These differences primarily relate to the effect of federal and state tax credits, state income taxes, excess tax benefits and deficiencies from stock-based compensation awards, tax deduction limitations on compensation of covered individuals, the cumulative effect of other smaller permanent differences, and can also reflect the cumulative
effect of an enacted tax rate change, in the period of enactment, on the Company’s net deferred tax asset and liability balances. These differences for the years ended December 31, 2025, 2024, and 2023, are presented below:
| For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
U.S. Federal statutory tax rate | $ | (174) | 21.0 | % | $ | (203) | 21.0 | % | $ | (192) | 21.0 | % | |||||||||||||||||||||||
R&D and other tax credits | 18 | (2.1) | 17 | (1.8) | 92 | (10.1) | |||||||||||||||||||||||||||||
| Change in valuation allowance | — | — | 1 | (0.1) | — | — | |||||||||||||||||||||||||||||
State tax (expense) benefit, net of federal effect (1) | (22) | 2.6 | (9) | 0.9 | 5 | (0.6) | |||||||||||||||||||||||||||||
Nontaxable and nondeductible Items | (4) | 0.5 | — | — | — | — | |||||||||||||||||||||||||||||
| Other | — | — | (1) | 0.3 | (2) | 0.2 | |||||||||||||||||||||||||||||
Effective tax rate | $ | (182) | 22.0 | % | $ | (196) | 20.3 | % | $ | (96) | 10.5 | % | |||||||||||||||||||||||
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Note: Amounts may not calculate due to rounding.
(1)
Acquisitions, divestitures, drilling activity, and basis differentials, which impact the prices received for oil, gas, and NGLs, impact the apportionment of taxable income to the states where the Company owns oil and gas properties. Transporting oil from the location where it is produced to the different markets where it may be sold affects the apportionment of income taxes. As these factors change, the Company’s state income tax rate changes. This change, when applied to the Company’s total temporary differences, impacts the total state income tax expense reported. Items affecting state apportionment factors are evaluated upon completion of the prior year income tax return, after significant acquisitions and divestitures, if there are significant changes in drilling activity, or if estimated state revenue changes occur during the year.
The Company completed a multi-year R&D credit study in 2023, which resulted in a favorable adjustment to the Company’s effective tax rate for the year ended December 31, 2023, and a reduction of the Company’s 2023 tax obligation. After utilizing a portion of the credits for the 2023 and 2024 tax years, the recorded net carryover R&D credit, as of December 31, 2025, expected to be utilized in future periods totaled $44 million. The R&D credits expire between 2042 and 2045.
On July 4, 2025, the OBBBA was enacted into law introducing changes to corporate tax provisions. The Company recorded the impact of this legislation on full-year income tax expense during the third quarter of 2025. As part of its evaluation of the OBBBA, and in accordance with ASC 740, the Company recorded increases to its deferred tax assets and liabilities. The adjustment to its deferred tax assets did not result in a change to the Company’s valuation allowance. Additionally, the Company recorded decreases to its current portion of income tax expense and current income taxes payable. These decreases were primarily attributable to the following provisions of the OBBBA: (i) reinstatement of the immediate expensing of domestic research and development (“R&D”) costs; (ii) allowance for the deduction of prior year capitalized and unamortized R&D costs; and (iii) the extension of 100 percent bonus depreciation for qualified property placed in service. The OBBBA also reinstated the option to elect a reduced R&D credit over capitalizing certain costs, which impacted the Company’s effective tax rate for the twelve months ended December 31, 2025.
For all years before 2022, the Company is generally no longer subject to United States federal or state income tax examinations by tax authorities.
The Company complies with authoritative accounting guidance regarding uncertain tax provisions. The entire amount of unrecognized tax benefit reported by the Company would affect its effective tax rate if recognized.
The total amount recorded for unrecognized tax benefits is presented below:
| For the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Beginning balance | $ | 29 | $ | 24 | $ | — | |||||||||||
| Additions based on tax positions related to current year | 2 | 5 | 24 | ||||||||||||||
| Ending balance | $ | 31 | $ | 29 | $ | 24 | |||||||||||
Income taxes paid (net of refunds) were as follows:
| For the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Federal | $ | (4) | $ | 26 | $ | 3 | |||||||||||
| State | 8 | 1 | 6 | ||||||||||||||
Total | $ | 4 | $ | 27 | $ | 9 | |||||||||||
Income taxes paid (net of refunds) exceeded five percent of total income taxes paid (net of refunds) in the following jurisdictions:
| For the Year Ended December 31, | |||||
| 2025 | |||||
(in millions) | |||||
| State | |||||
Texas | $ | 2 | |||
Utah | 1 | ||||
Delaware | 2 | ||||
Oklahoma | 3 | ||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 18, 2021 | |
| 2019 | Feb 20, 2020 | |
| 2018 | Feb 21, 2019 | |
| 2017 | Feb 21, 2018 | |
| 2016 | Feb 23, 2017 | |
| 2015 | Feb 24, 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.