Summit Midstream CorpSMC
Summit Midstream Corp Income Taxes Disclosure
16. INCOME TAXES
Prior to consummation of the Corporate Reorganization, SMLP was treated as a partnership for federal and state income tax purposes, in which SMLP’s taxable income or loss was passed through to its unitholders. SMLP was subject to Texas margin tax. Therefore, with the exception of the state of Texas, SMLP did not directly pay federal and state income taxes and no entity-level income tax provisions was recorded other than for the effects of the Texas margin tax.
Effective August 1, 2024, pursuant to the Corporate Reorganization, Summit Midstream Corporation became a corporation and thus is subject to U.S. federal and state income taxes. Upon consummation of the Corporate Reorganization, Summit Midstream Corporation recognized (i) an incremental $153.0 million income tax expense in its consolidated statements of operations for temporary differences that existed as of the date of the Corporate Reorganization, (ii) a $32.4 million tax benefit to equity due to changes in tax bases and liabilities and (iii) a net deferred tax liability of $120.6 million in its consolidated balance sheet.
On December 2, 2024, the Company completed the transaction contemplated in the Tall Oak Business Contribution Agreement, pursuant to which Tall Oak Parent contributed all of its equity interests in Tall Oak to SMLP in exchange for total consideration equal to $425.0 million. Upon completion of the Tall Oak Acquisition, the Company, and Tall Oak Parent jointly owned SMLP each with economic and voting rights, and Tall Oak Parent owned exchangeable non-economic Class B Common Stock with Company voting rights (the “Up-C Structure”). Starting on December 2, 2024, SMLP is treated as a partnership for income tax reporting purposes. Its partners, including the Company, are liable for federal, state, and local income taxes based on their share of SMLP’s taxable income.
The provision (benefit) for income taxes included the following components:
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | ||||||||||||||
| State | 200 | (135) | 322 | |||||||||||||||||
| $ | 200 | $ | (135) | $ | 322 | |||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | $ | (245) | $ | 124,330 | $ | — | ||||||||||||||
| State | (456) | 22,483 | — | |||||||||||||||||
| $ | (701) | $ | 146,813 | $ | — | |||||||||||||||
| Provision (benefit) for income taxes | $ | (501) | $ | 146,678 | $ | 322 | ||||||||||||||
The following reconciles the provision for income taxes included in the consolidated statements of operations with the provision which would result from application of the statutory federal tax rate to pre-tax financial income for the year ended December 31, 2025 in accordance with ASU 2023-09:
(in thousands) | 2025 | % | ||||||||||||
| Pretax Income | $ | (2,407) | ||||||||||||
| (505) | 21% | |||||||||||||
| State and Local Income Taxes, Net of Federal Benefit | (144) | 6% | ||||||||||||
| Nontaxable/Nondeductible Items | ||||||||||||||
| Limitation on Executive Compensation | 2,271 | (94)% | ||||||||||||
| Share-Based Compensation | (691) | 29% | ||||||||||||
| Noncontrolling Interest | (847) | 35% | ||||||||||||
| Other Adjustments | ||||||||||||||
| Deferred Tax Adjustment | (611) | 25% | ||||||||||||
| Change in Outside Basis | 28 | (1)% | ||||||||||||
| Other Tax Expense | (2) | —% | ||||||||||||
| Total Tax Expense (Benefit) | $ | (501) | 21% | |||||||||||
The Company’s state and local income tax benefit consists of operations in Colorado, North Dakota, New Mexico, Oklahoma, and Texas.
The following reconciles the provision for income taxes included in the consolidated statement of operations with the provision which would result from application of the statutory federal tax rate to pre-tax financial income for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09:
(in thousands) | 2024 | 2023 | ||||||||||||
Income (loss) before income taxes | $ | 33,503 | $ | (38,625) | ||||||||||
Increase (decrease) resulting from: | ||||||||||||||
Pretax income at federal statutory rates | 7,036 | (8,111) | ||||||||||||
State income taxes, net of federal income tax effect | (804) | 322 | ||||||||||||
Corporate reorganization | 152,992 | — | ||||||||||||
Transaction costs | 1,086 | — | ||||||||||||
Minority interests in Summit Midstream Partners, LP | 1,222 | — | ||||||||||||
Removal of noncontrolling interests | (3,304) | — | ||||||||||||
Removal of nontaxable income | (11,550) | 8,111 | ||||||||||||
Provision (benefit) for income taxes | $ | 146,678 | $ | 322 | ||||||||||
Effective Tax Rate | 438 | % | (1) | % | ||||||||||
The components of the Company’s deferred tax balances as of December 31, 2025 and 2024 were as follows:
| (in thousands) | 2025 | 2024 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
Investment in Partnership | $ | (117,043) | $ | (86,227) | ||||||||||
Total deferred tax liabilities | $ | (117,043) | $ | (86,227) | ||||||||||
| Deferred tax assets: | ||||||||||||||
Interest expense | 9,830 | 6,001 | ||||||||||||
Net operating loss carryforward | 33,321 | 15,683 | ||||||||||||
Other | 257 | 1,217 | ||||||||||||
| Subtotal | $ | 43,408 | $ | 22,901 | ||||||||||
Valuation allowance | — | — | ||||||||||||
Total deferred tax assets | $ | 43,408 | $ | 22,901 | ||||||||||
Net deferred tax liability | $ | (73,635) | $ | (63,326) | ||||||||||
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, and when necessary, valuation allowances are provided. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company assesses the realizability of its deferred tax assets quarterly and considers carryback availability, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. No valuation allowance has been recognized as of December 31, 2025.
As of December 31, 2025, the Company has $139.6 million of U.S. federal net operating loss carryforwards that have an indefinite life and $118.0 million of state net operating losses that will begin to expire in 2044.
The Company’s policy is to record interest and penalties for uncertain tax positions in income tax expense. At December 31, 2025, the Company did not have any uncertain tax positions, interest, or penalties.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 16, 2026 | Showing above |
| 2024 | Mar 11, 2025 | |
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.