STANDARD MOTOR PRODUCTS, INC.SMP
STANDARD MOTOR PRODUCTS, INC. Income Taxes Disclosure
Income Taxes
Earnings from continuing operations before income taxes consists of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 105,356 | $ | 71,742 | $ | 60,780 | |||||||||||
| Foreign | 5,167 | 2,247 | 20,936 | ||||||||||||||
| Total | $ | 110,523 | $ | 73,989 | $ | 81,716 | |||||||||||
The provision (benefit) for income taxes attributable to continuing operations consists of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current tax expense (benefit) | |||||||||||||||||
| Domestic federal | $ | 15,650 | $ | 17,426 | $ | 13,832 | |||||||||||
| Domestic state and local | 1,951 | 2,335 | 1,590 | ||||||||||||||
| Foreign | 22,439 | 11,254 | 9,224 | ||||||||||||||
| Total current tax expense | 40,040 | 31,015 | 24,646 | ||||||||||||||
| Deferred tax expense (benefit) | |||||||||||||||||
| Domestic federal | (3,919) | (7,848) | (4,926) | ||||||||||||||
| Domestic state and local | (1,031) | (1,688) | (843) | ||||||||||||||
| Foreign | (4,473) | (2,094) | (509) | ||||||||||||||
| Total deferred tax expense | (9,423) | (11,630) | (6,278) | ||||||||||||||
| Total income tax expense (benefit) | |||||||||||||||||
| Domestic federal | 11,731 | 9,578 | 8,906 | ||||||||||||||
| Domestic state and local | 920 | 647 | 747 | ||||||||||||||
| Foreign | 17,966 | 9,160 | 8,715 | ||||||||||||||
| Total income tax expense | $ | 30,617 | $ | 19,385 | $ | 18,368 | |||||||||||
Reconciliations between taxes at the U.S. federal income tax rate and taxes at our effective income tax rate on earnings from continuing operations before income taxes are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | Rate | Amount | Rate | Amount | Rate | ||||||||||||||||||||||||||||||
| U.S. federal statutory tax | $ | 23,210 | 21.0 | % | $ | 15,538 | 21.0 | % | $ | 17,160 | 21.0 | % | |||||||||||||||||||||||
| Effect of cross-border tax laws | |||||||||||||||||||||||||||||||||||
| Global intangible low taxed income (GILTI) ⁽ᵃ⁾ | — | — | 2,986 | 4.0 | 3,070 | 3.7 | |||||||||||||||||||||||||||||
| U.S. taxation of Mexican disregarded entities | 1,972 | 1.8 | 1,871 | 2.5 | 1,881 | 2.3 | |||||||||||||||||||||||||||||
| Other | (50) | — | (326) | (0.4) | (743) | (0.9) | |||||||||||||||||||||||||||||
| Tax credits | |||||||||||||||||||||||||||||||||||
| Foreign tax credits | (3,452) | (3.1) | (5,297) | (7.1) | (5,356) | (6.6) | |||||||||||||||||||||||||||||
| Changes in valuation allowances | 2,360 | 2.1 | 770 | 1.0 | 865 | 1.1 | |||||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
| Nondeductible acquisition costs | — | — | 795 | 1.1 | — | — | |||||||||||||||||||||||||||||
| Permanent difference true-up | (256) | (0.2) | (395) | (0.5) | (1,330) | (1.6) | |||||||||||||||||||||||||||||
| Other | 193 | 0.2 | (118) | (0.2) | 29 | — | |||||||||||||||||||||||||||||
| Other adjustments | 14 | — | (122) | (0.2) | (131) | (0.2) | |||||||||||||||||||||||||||||
| Domestic state and local income taxes, net of federal income tax effect ⁽ᵇ⁾ | 3,057 | 2.8 | 1,922 | 2.6 | 2,086 | 2.6 | |||||||||||||||||||||||||||||
| Foreign tax effects | |||||||||||||||||||||||||||||||||||
| Canada | |||||||||||||||||||||||||||||||||||
| Provincial | 1,794 | 1.6 | 1,305 | 1.8 | 1,028 | 1.3 | |||||||||||||||||||||||||||||
| Other | (442) | (0.4) | (710) | (1.0) | (607) | (0.7) | |||||||||||||||||||||||||||||
| Mexico | 1,173 | 1.0 | 1,465 | 2.0 | 1,097 | 1.3 | |||||||||||||||||||||||||||||
| Other foreign jurisdictions | 1,045 | 0.9 | (299) | (0.4) | (681) | (0.8) | |||||||||||||||||||||||||||||
| Effective tax rate | $ | 30,617 | 27.7 | % | $ | 19,385 | 26.2 | % | $ | 18,368 | 22.5 | % | |||||||||||||||||||||||
(a) We intend to elect the GILTI high tax exception when we file our income tax return for the year ended December 31, 2025. This election excludes from GILTI the income of a controlled foreign corporation that incurs a foreign tax at a rate greater than 90% of the U.S. corporate rate. Accordingly, the amount of global intangible low taxed income reflected above is zero.
(b) The states that comprise more than 50% of the tax effect in this category for 2025 include Texas, Tennessee, California, and Illinois. Texas, Tennessee, Kansas, New York, Illinois, and California for 2024, and Texas, California, Kansas, New York, and Illinois for 2023.
The following is a summary of the components of the net deferred tax assets and liabilities recognized in the accompanying consolidated balance sheets (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Inventories | $ | 12,624 | $ | 9,087 | |||||||
| Allowance for customer returns | 16,298 | 17,854 | |||||||||
| Accrued asbestos liabilities | 31,579 | 24,032 | |||||||||
| Accrued salaries and benefits | 13,861 | 13,564 | |||||||||
| Tax credit and net operating loss carryforwards | 7,689 | 5,690 | |||||||||
| Allowance for expected credit losses | 4,631 | 3,586 | |||||||||
| Other | 4,351 | 10 | |||||||||
| 91,033 | 73,823 | ||||||||||
| Valuation allowance | (7,270) | (4,849) | |||||||||
| Total deferred tax assets | 83,763 | 68,974 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets acquired, net of amortization | 44,319 | 43,755 | |||||||||
| Depreciation | 7,486 | 6,669 | |||||||||
| Other | 6,574 | 5,351 | |||||||||
| Total deferred tax liabilities | 58,379 | 55,775 | |||||||||
| Net deferred tax assets | $ | 25,384 | $ | 13,199 | |||||||
In assessing the realizability of the deferred tax assets, we consider whether it is more likely than not that some portion or the entire deferred tax asset will be realized. Ultimately, the realization of the deferred tax asset is dependent upon the generation of sufficient taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. We consider the level of historical taxable income, scheduled reversal of temporary differences, carryback and carryforward periods, tax planning strategies and projected future taxable income in determining whether a valuation allowance is warranted. We also consider cumulative losses in recent years as well as the impact of one-time events in assessing our pre-tax earnings. Assumptions regarding future taxable income require significant judgment. Our assumptions are consistent with estimates and plans used to manage our business.
The valuation allowance of $7.3 million as of December 31, 2025 is intended to provide for uncertainty regarding the ultimate realization of our U.S. foreign tax credit carryovers of $7.0 million that will expire in varying amounts by 2035, and foreign net operating losses subject to valuation allowance of $0.3 million. Based on these considerations, we believe it is more likely than not that we would realize the benefit of the net deferred tax asset of $25.4 million as of December 31, 2025, which is net of the remaining valuation allowance.
As related to the taxation of our foreign subsidiaries, we aggregate our foreign earnings and profits, and utilize allowable deductions and available foreign tax credits in computing our U.S. tax. Notwithstanding the U.S. taxation of these amounts, we intend to continue to invest most of these earnings indefinitely outside of the U.S., and do not expect to incur any significant additional taxes related to such amounts.
We recognize in our financial statements only those tax positions that meet the more-likely-than-not recognition threshold. We establish tax reserves for uncertain tax positions that do not meet this threshold. During the years ended December 31, 2025, 2024 and 2023, we did not establish a liability for uncertain tax positions.
We are subject to taxation in the U.S. and various state, local and foreign jurisdictions. As of December 31, 2025, the Company is no longer subject to U.S. Federal tax examinations for years before 2022. We remain subject to examination by state and local tax authorities for tax years 2021 through 2024. Foreign jurisdictions have statutes of limitations generally ranging from 2 to 6 years. Years still open to examination by foreign tax authorities in major jurisdictions include
Canada (2021 onward), Poland (2020 onward) and Denmark (2020 onward). We do not presently anticipate that our unrecognized tax benefits will significantly increase or decrease over the next 12 months; however, actual developments in this area could differ from those currently expected.
The following is a summary of our cash taxes paid (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic federal | $ | 2,185 | $ | 2,008 | $ | 4,978 | |||||||||||
| Domestic state and local | 1,834 | 681 | 1,068 | ||||||||||||||
| Foreign | |||||||||||||||||
| Canada - federal | 2,586 | 1,918 | 1,675 | ||||||||||||||
| Canada - provincial | 1,834 | 1,335 | 1,135 | ||||||||||||||
| China | 2,126 | 1,427 | 862 | ||||||||||||||
| Denmark | 6,665 | 3,859 | — | ||||||||||||||
| Mexico | 4,761 | 5,507 | 4,198 | ||||||||||||||
| Poland | 879 | 1,559 | 1,104 | ||||||||||||||
| Other | 1,963 | 1,547 | 999 | ||||||||||||||
| Total | $ | 24,833 | $ | 19,841 | $ | 16,019 | |||||||||||
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.