Super Micro Computer, Inc.SMCI
Super Micro Computer, Inc. Income Taxes Disclosure
Note 12. Income Taxes
The components of income before income tax provision for the fiscal years ended June 30, 2025, 2024, and 2023 are as follows (in thousands):
| Years Ended June 30, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | 1,064,753 | $ | 1,110,906 | $ | 632,237 | |||||||||||
| Foreign | 147,163 | 103,233 | 122,060 | ||||||||||||||
| Income before income tax provision | $ | 1,211,916 | $ | 1,214,139 | $ | 754,297 | |||||||||||
The income tax provision for the fiscal years ended June 30, 2025, 2024, and 2023, consists of the following (in thousands):
| Years Ended June 30, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 266,228 | $ | 173,838 | $ | 149,217 | |||||||||||
| State | 36,749 | 20,969 | 23,096 | ||||||||||||||
| Foreign | 68,512 | 36,986 | 31,063 | ||||||||||||||
| 371,489 | 231,793 | 203,376 | |||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (161,039) | (162,286) | (80,975) | ||||||||||||||
| State | (11,983) | (5,405) | (9,633) | ||||||||||||||
| Foreign | (41,616) | (808) | (2,102) | ||||||||||||||
| (214,638) | (168,499) | (92,710) | |||||||||||||||
| Income tax provision | $ | 156,851 | $ | 63,294 | $ | 110,666 | |||||||||||
Our net deferred tax assets as of June 30, 2025 and 2024 consist of the following (in thousands):
| June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Capitalized research and development costs | $ | 334,534 | $ | 240,489 | |||||||
| Research and development credits | 76,013 | 56,707 | |||||||||
| Deferred revenue | 64,119 | 35,815 | |||||||||
| Convertible Notes | 52,552 | 31,819 | |||||||||
| Inventory valuation | 87,373 | 33,255 | |||||||||
| Stock-based compensation | 32,301 | 16,389 | |||||||||
| Lease obligations | 67,620 | 7,274 | |||||||||
| Warranty accrual | 3,585 | 3,737 | |||||||||
| Accrued vacation and bonus | 6,733 | 3,668 | |||||||||
| Bad debt and other reserves | 4,809 | 2,597 | |||||||||
| Marketing fund accrual | 4,388 | 2,102 | |||||||||
| Other | 24,581 | 4,910 | |||||||||
| Total gross deferred income tax assets | 758,608 | 438,762 | |||||||||
| Less valuation allowance | (78,934) | (59,841) | |||||||||
| Total deferred tax assets | 679,674 | 378,921 | |||||||||
| Right of use asset | (65,946) | (7,005) | |||||||||
| Depreciation and amortization | (6,312) | (6,744) | |||||||||
| Total deferred tax liabilities | (72,258) | (13,749) | |||||||||
| Deferred income tax assets, net | $ | 607,416 | $ | 365,172 | |||||||
We assess our deferred tax assets for recoverability on a regular basis, and where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more likely than not, be realized in the future. As of June 30, 2025, we believe that most of its deferred tax assets are “more-likely-than not” to be realized with the exception of state research and development tax credits and unrealized capital losses that have not met the “more-likely than not” realization threshold criteria. As a result, at June 30, 2025, the gross excess credits of $96.2 million, or net of federal tax benefit of $76.0 million, were subject to a full valuation allowance. At June 30, 2024, the gross excess credits of $71.8 million, or net of federal tax benefit of $56.7 million, were subject to a full valuation allowance. The change in valuation allowance is $19.1 million and $23.2 million for the fiscal years ended June 30, 2025 and 2024, respectively. We will continue to review its deferred tax assets in accordance with the applicable accounting standards. The net deferred tax assets balance as of June 30, 2025 and 2024 was $607.4 million and $365.2 million, respectively.
The following is a reconciliation for the fiscal years ended June 30, 2025, 2024, and 2023, of the statutory rate to our effective federal tax rate:
| Years Ended June 30, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Income tax provision at statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||||
| State income tax, net of federal tax benefit | 1.1 | 1.0 | 1.1 | |||||||||||||||||
| Foreign rate differential | 0.5 | 0.2 | 0.8 | |||||||||||||||||
| Research and development tax credit | (3.8) | (6.0) | (3.3) | |||||||||||||||||
| Uncertain tax positions, net of (settlement) with Tax Authorities | 0.1 | 1.1 | 0.1 | |||||||||||||||||
| Foreign derived intangible / Subpart F income inclusion | (2.5) | (2.2) | (1.9) | |||||||||||||||||
| Stock-based compensation | (4.5) | (11.8) | (3.4) | |||||||||||||||||
| Provision to return true-up | (0.1) | (0.1) | (0.1) | |||||||||||||||||
| Officer Comp IRC section 162(m) limitation | 0.9 | 1.8 | 0.2 | |||||||||||||||||
Others, net | 0.2 | 0.2 | 0.2 | |||||||||||||||||
| Effective tax rate | 12.9 | % | 5.2 | % | 14.7 | % | ||||||||||||||
As of June 30, 2025, we had state research and development tax credit carryforwards of $126.3 million. The state research and development tax credits will carry forward indefinitely to offset future state income taxes.
The following table summarizes the activity related to the unrecognized tax benefits (in thousands):
| Gross* Unrecognized Income Tax Benefits | |||||
Balance at June 30, 2022 | $ | 38,001 | |||
| Gross increases: | |||||
| For current year’s tax positions | 6,632 | ||||
| For prior years’ tax positions | 1,616 | ||||
| Gross decreases: | |||||
| Decreases due to settlements with taxing authority | (2,077) | ||||
Decreases due to lapse of statute of limitations | (1,429) | ||||
Balance at June 30, 2023 | 42,743 | ||||
| Gross increases: | |||||
| For current year’s tax positions | 19,577 | ||||
| For prior years’ tax positions | 3,076 | ||||
| Gross decreases: | |||||
| Decreases due to settlements with taxing authority | (8,981) | ||||
| Decreases due to lapse of statute of limitations | (2,974) | ||||
Balance at June 30, 2024 | 53,441 | ||||
| Gross increases: | |||||
| For current year’s tax positions | 12,283 | ||||
| For prior years’ tax positions | 2,333 | ||||
| Gross decreases: | |||||
| Decreases due to settlements with taxing authority | (2,782) | ||||
| Decreases due to lapse of statute of limitations | (3,706) | ||||
Balance at June 30, 2025 | $ | 61,569 | |||
*Excludes interest, penalties, federal benefit of state reserves
We had gross unrecognized tax benefits of $61.6 million, $53.4 million and $42.7 million as of June 30, 2025, 2024, and 2023, respectively.
For fiscal year 2025 and 2024, total unrecognized income tax benefits were $30.9 million, and $28.6 million, respectively, if recognized, would affect the effective tax rate.
Our policy is to include interest and penalties related to unrecognized tax benefits within the income tax provision in the consolidated statements of operations. As of June 30, 2025 and 2024, we had accrued $5.0 million and $4.4 million for the payment of interest and penalties relating to unrecognized tax benefits, respectively. The impact of interest and penalties on our income tax provision was immaterial for the fiscal years ended June 30, 2025, and June 30, 2024.
We believe that we have adequately provided reserves for all uncertain tax positions; however, amounts asserted by tax authorities could be greater or less than our current position. Accordingly, our provision on federal, state and foreign tax related matters to be recorded in the future may change as revised estimates are made or as the underlying matters are settled or otherwise resolved.
We are subject to taxation and files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The federal statute of limitations remains open in general for tax years ended June 30, 2022 and after. Various states statute of limitations remains open in general for tax years ended June 30, 2021 and after. Certain statutes of limitations in major foreign jurisdictions remain open in general for the tax years ended June 30, 2020 and after. It is reasonably possible that our gross unrecognized tax benefits will decrease by approximately $4.1 million, in the next 12 months, due to the lapse of the statute of limitations. These adjustments, if recognized, would positively impact our effective tax rate, and would be recognized as additional tax benefits.
Subsequent to June 30, 2025, the OBBBA was enacted in the U.S. on July 4, 2025. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We are currently assessing its impact on our consolidated financial statements.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 28, 2025 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Aug 28, 2023 | |
| 2022 | Aug 29, 2022 | |
| 2021 | Aug 27, 2021 | |
| 2020 | Aug 31, 2020 | |
| 2019 | Dec 19, 2019 | |
| 2017 | May 17, 2019 | |
| 2016 | Aug 26, 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.