SEMPRASRE

SEMPRA Income Taxes Disclosure

10-KFiled Feb 26, 202613 min read
INCOME TAXES
We provide our calculations of ETRs in the following table.
INCOME TAX EXPENSE (BENEFIT) AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
 Years ended December 31,
 202520242023
Sempra:
Income tax expense$701 $219 $490 
Income before income taxes and equity earnings$1,169 $2,110 $2,627 
Equity earnings, before income tax(1)
620 603 633 
Pretax income$1,789 $2,713 $3,260 
Effective income tax rate39 %8 %15 %
SDG&E:
Income tax (benefit) expense$(128)$153 $(26)
Income before income taxes$435 $1,044 $910 
Effective income tax rate(29)%15 %(3)%
SoCalGas:
Income tax (benefit) expense$(38)$31 $(5)
Income before income taxes$828 $987 $807 
Effective income tax rate(5)%3 %(1)%
(1)    We discuss how we recognize equity earnings in Note 5.
For SDG&E and SoCalGas, the CPUC requires flow-through rate-making treatment for the current income tax benefit or expense arising from certain property-related and other temporary differences between the treatment for financial reporting and income tax, which will reverse over time. Under the regulatory accounting treatment required for these flow-through temporary differences, deferred income tax assets and liabilities are not recorded to deferred income tax expense, but rather to a regulatory asset or liability that will be flowed through to customers in the future, which impacts the ETR. As a result, changes in the relative size of these items compared to pretax income, from period to period, can cause variations in the ETR. Items subject to flow-through treatment include:
▪repairs expenditures related to certain utility plant fixed assets
▪the equity component of AFUDC, which is non-taxable
▪cost of removal related to certain utility plant assets
▪utility self-developed software expenditures
▪depreciation related to certain utility plant assets
▪state income taxes
AFUDC related to equity recorded for regulated construction projects at Sempra Infrastructure has similar flow-through treatment.
The OBBBA was signed into law on July 4, 2025. The OBBBA includes revisions to tax credits and other incentives for energy and climate initiatives of the Inflation Reduction Act enacted in 2022 and extends or revises key provisions of the TCJA, among other changes. Effective January 1, 2025, we have adopted the provisions of OBBBA, which include immediate expensing of domestic research and experimental expenditures, including utility self-developed software expenditures, under the new Internal Revenue Code Section 174A. This change supersedes prior rules requiring five-year amortization of domestic research and experimental expenditures under the TCJA. In accordance with IRS transitional guidance (Revenue Procedure 2025-28), we plan to elect to accelerate deductions for domestic unamortized utility self-developed software expenditures incurred in tax years 2022-2024, with remaining balances deductible over 2025 and 2026. As a result, Sempra, SDG&E and SoCalGas recorded an income tax benefit of $73 million, $26 million and $47 million, respectively, in the year ended December 31, 2025.
We present in the table below reconciliations of the U.S. federal statutory income tax rate to our ETRs.
RECONCILIATION OF FEDERAL INCOME TAX RATE TO EFFECTIVE INCOME TAX RATES
(Dollars in millions)
 Years ended December 31,
 202520242023
Sempra:
U.S. federal statutory income tax rate$376 21 %$570 21 %$684 21 %
State income taxes, net of federal
income tax benefit(1)
204 11 23 1 6 — 
Foreign tax effects:
Mexico:
Rate differential40 2 32 1 50 2 
Foreign exchange and inflation246 14 (368)(14)290 9 
Outside basis difference142 8 12 1 — — 
Other(20)(1)— — (33)(1)
Tax credits:
Investment tax credits(100)(6)(17)(1)(144)(4)
Other(2)— — — (3)— 
Change in valuation allowances(266)(15)347 13 — — 
Nontaxable or nondeductible items(23)(1)(25)(1)(14)(1)
Changes in unrecognized tax benefits3 — 2 — (35)(1)
Regulatory tax effects(2)
(304)(17)(246)(9)(203)(6)
Noncontrolling interests(43)(2)(79)(3)(91)(3)
Other adjustments(15)(1)(32)(1)(17)(1)
SI Partners held for sale outside basis
differences
463 26 — — — — 
Effective income tax rate$701 39 %$219 8 %$490 15 %
SDG&E:
U.S. federal statutory income tax rate$91 21 %$219 21 %$191 21 %
State income taxes, net of federal
income tax benefit(3)
(12)(3)36 3 19 2 
Tax credits:
Investment tax credits(100)(23)(17)(1)(144)(16)
Other— — (1)— — — 
Nontaxable or nondeductible items(2)— (1)— (1)— 
Changes in unrecognized tax benefits(1)— — — — — 
Regulatory tax effects(2)
(105)(24)(84)(8)(89)(10)
Other adjustments1 — 1 — (2)— 
Effective income tax rate$(128)(29)%$153 15 %$(26)(3)%
SoCalGas:
U.S. federal statutory income tax rate$174 21 %$208 21 %$169 21 %
State income taxes, net of federal
income tax benefit(3)
(11)(2)(14)(1)(23)(3)
Tax credits(3)— (3)— (2)— 
Nontaxable or nondeductible items2 — 2 — 2 — 
Changes in unrecognized tax benefits(1)— — — (44)(6)
Regulatory tax effects(2)
(199)(24)(162)(17)(114)(14)
Other adjustments— — — — 71 
Effective income tax rate$(38)(5)%$31 3 %$(5)(1)%
(1)    State taxes in California and Louisiana made up the majority (greater than 50%) of the tax effect in this category.
(2)    Includes federal impacts of flow-through rate-making treatment.
(3)    State taxes in California made up substantially all the tax effect in this category.
In 2025, we recognized income tax expense of $693 million to adjust deferred income tax liabilities primarily related to outside basis differences in our investment in SI Partners for foreign subsidiaries that are no longer considered to be indefinitely reinvested and income tax expense of $14 million ($10 million after NCI) for a Mexican deferred income tax liability on our outside basis difference in Ecogas as a result of management’s decision to classify these assets as held for sale, which we discuss in Note 6.
The table below presents the geographic location of pretax income.
PRETAX INCOME BY GEOGRAPHIC LOCATION
(Dollars in millions)
 Years ended December 31,
 202520242023
Sempra:
U.S.$1,353 $2,354 $2,678 
Foreign436 359 582 
Total(1)
$1,789 $2,713 $3,260 
(1)    See the Income Tax Expense (Benefit) and Effective Income Tax Rates table above for the calculation of pretax income.
The components of income tax expense are as follows.
INCOME TAX EXPENSE (BENEFIT)
(Dollars in millions)
 Years ended December 31,
 202520242023
Sempra:
Current:
U.S. federal$(18)$73 $102 
U.S. state38 (4)3 
Foreign126 179 208 
Total146 248 313 
Deferred:
U.S. federal(45)366 (56)
U.S. state230 28 18 
Foreign383 (422)225 
Total(1)
568 (28)187 
Deferred investment tax credits(1)
(13)(1)(10)
Total income tax expense$701 $219 $490 
SDG&E:
Current:
U.S. federal$4 $(16)$(156)
U.S. state13 — (5)
Total17 (16)(161)
Deferred:
U.S. federal(114)129 111 
U.S. state(19)41 35 
Total(133)170 146 
Deferred investment tax credits(12)(1)(11)
Total income tax (benefit) expense$(128)$153 $(26)
SoCalGas:
Current:
U.S. federal$18 $3 $(6)
U.S. state51 — (11)
Total69 3 (17)
Deferred:
U.S. federal(40)45 22 
U.S. state(66)(16)(11)
Total(106)29 11 
Deferred investment tax credits(1)(1)1 
Total income tax (benefit) expense$(38)$31 $(5)
(1)    In 2025, 2024 and 2023, Deferred Income Taxes and Investment Tax Credits on the Sempra Consolidated Statements of Cash Flows also includes $22, $9 and $72, respectively, of income taxes included in equity earnings, which are recorded net of income tax under a tax sharing agreement with Oncor.
The tables below present the components of deferred income taxes:
DEFERRED INCOME TAXES
(Dollars in millions)
 December 31,
 20252024
Sempra(1):
Deferred income tax liabilities:
Differences in financial and tax bases of fixed assets, investments and other assets(2)
$7,691 $7,164 
U.S. and foreign tax on repatriation of foreign earnings— 79 
Regulatory balancing accounts637 850 
Right-of-use assets – operating leases357 325 
Property taxes— 74 
Postretirement benefits— 150 
Other deferred income tax liabilities446 94 
Total deferred income tax liabilities9,131 8,736 
Deferred income tax assets:
Tax credits1,564 1,485 
Net operating losses935 1,105 
Compensation-related items212 225 
Operating lease liabilities363 301 
Other deferred income tax assets173 219 
Bad debt allowance— 151 
Accrued expenses not yet deductible— 80 
Deferred income tax assets before valuation allowances3,247 3,566 
Less: valuation allowances233 503 
Total deferred income tax assets3,014 3,063 
Net deferred income tax liability(3)
$6,117 $5,673 
(1)    At December 31, 2025, excludes $894 of net deferred income tax liability, comprised of $982 of deferred income tax liabilities and $88 of deferred income tax assets, that is included in Liabilities Held for Sale on the Sempra Consolidated Balance Sheet.
(2)    In addition to the financial over tax basis differences in fixed assets, the amount also includes financial over tax basis differences in various interests in partnerships and certain subsidiaries.
(3)    At December 31, 2025 and 2024, includes $10 and $172, respectively, recorded as a noncurrent asset and $6,127 and $5,845, respectively, recorded as a noncurrent liability on the Consolidated Balance Sheets.
DEFERRED INCOME TAXES
(Dollars in millions)
 SDG&ESoCalGas
 December 31,
 2025202420252024
Deferred income tax liabilities:
Differences in financial and tax bases of utility plant and other assets$2,971 $2,805 $2,902 $2,594 
Regulatory balancing accounts478 545 158 306 
Right-of-use assets – operating leases293 222 19 5 
Property taxes53 47 31 27 
Postretirement benefits— — 173 124 
Other deferred income tax liabilities4 — — 2 
Total deferred income tax liabilities3,799 3,619 3,283 3,058 
Deferred income tax assets:
Tax credits98 8 2 2 
Compensation-related items— 8 — 26 
Operating lease liabilities293 222 19 5 
Bad debt allowance— 29 54 72 
Accrued expenses not yet deductible— 10 53 54 
Net operating losses77 122 799 874 
Other deferred income tax assets45 9 85 20 
Total deferred income tax assets513 408 1,012 1,053 
Net deferred income tax liability$3,286 $3,211 $2,271 $2,005 
The following table provides the valuation allowances that we recorded against a portion of our total deferred income tax assets shown above in the “Deferred Income Taxes – Sempra” table.
VALUATION ALLOWANCES BY JURISDICTION
(Dollars in millions)
December 31,
20252024
Sempra:
U.S. federal$137 $406 
U.S. state9647 
Foreign(1)
—50 
$233 $503 
(1)    At December 31, 2025, excludes $50 of valuation allowances that are included in Assets Held for Sale on the Sempra Consolidated Balance Sheet.
A valuation allowance is recorded when, based on more-likely-than-not criteria, negative evidence outweighs positive evidence with regard to our ability to realize a deferred income tax asset in the future. In the year ended December 31, 2025, we recognized an income tax benefit of $344 million from changes to a valuation allowance against certain tax credit carryforwards as a result of management’s decision to classify SI Partners as held for sale. In the years ended December 31, 2025 and 2024, we recognized income tax expense of $78 million and $330 million, respectively, from changes to a valuation allowance against foreign tax credits that were carried forward from the implementation of the TCJA. For various U.S. state and foreign jurisdictions, the negative evidence outweighs the positive evidence primarily due to cumulative pretax losses resulting in deferred income tax assets that we currently do not believe will be realized on a more-likely-than-not basis.
The following table summarizes our unused NOLs and tax credit carryforwards.
NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
(Dollars in millions)
Unused amount at December 31, 2025Year expiration begins
Sempra:
U.S. federal:
NOLs(1)
$3,169 2037
General business tax credits(1)
260 2043
Corporate alternative minimum tax credits(1)
630 Indefinite
Foreign tax credits(2)
704 2026
U.S. state:
NOLs(2)
5,762 2027
General business tax credits(1)
20 2027
Foreign(2)(3):
NOLs693 2026
Foreign tax credits5 Indefinite
SDG&E:
U.S. federal(1):
NOLs$94 Indefinite
General business tax credits92 2045
U.S. state NOLs(1)
818 2046
SoCalGas:
U.S. federal NOLs(1)
$2,489 Indefinite
U.S. state NOLs(1)
3,952 2045
(1)    We have recorded deferred income tax benefits on these NOLs and tax credits, in total, because we currently believe they will be realized on a more-likely-than-not-basis.
(2)    We have not recorded deferred income tax benefits on a portion of these NOLs and tax credits because we currently believe they will not be realized on a more-likely-than-not-basis, as we discuss below.
(3)    Deferred tax assets related to foreign NOLs and foreign tax credits are included within the disposal group that is classified as held for sale.
On February 18, 2026, the IRS issued Notice 2026‑7, which provides additional guidance on the application of the Corporate Alternative Minimum Tax (CAMT), including the treatment of certain capitalized repairs and maintenance expenditures. We are currently evaluating the impact of this guidance. Based on our initial assessment, we expect it will result in a prospective reduction in our CAMT liability in periods when we are subject to CAMT. In addition, we expect to amend prior year tax returns to claim refunds for CAMT previously paid.
Following is a reconciliation of the changes in unrecognized income tax benefits and the potential effect on our ETR for the years ended December 31:
RECONCILIATION OF UNRECOGNIZED INCOME TAX BENEFITS
(Dollars in millions)
 202520242023
Sempra:
Balance at January 1$548 $492 $278 
Increase in prior period tax positions19 40 308 
Decrease in prior period tax positions(28)(8)(63)
Decrease in current period tax positions— — (21)
Settlements with tax authorities(19)(15)(16)
Increase in current period tax positions81 39 6 
Balance at December 31(1)
$601 $548 $492 
Of December 31 balance, amounts related to tax positions that if recognized
in future years would
decrease the effective tax rate$(500)$(229)$(224)
increase the effective tax rate— 1 1 
SDG&E:
Balance at January 1$14 $14 $14 
Increase in prior period tax positions— — 2 
Settlements with tax authorities(6)— (2)
Balance at December 31$8 $14 $14 
Of December 31 balance, amounts related to tax positions that if recognized
in future years would
decrease the effective tax rate$(8)$(11)$(11)
increase the effective tax rate— 1 1 
SoCalGas:
Balance at January 1$29 $29 $77 
Increase in prior period tax positions— — 1 
Decrease in prior period tax positions— — (47)
Settlements with tax authorities(2)— (2)
Balance at December 31$27 $29 $29 
Of December 31 balance, amounts related to tax positions that if recognized
in future years would
decrease the effective tax rate$(27)$(29)$(29)
(1)    At December 31, 2025, includes $33 that is within the disposal group that is classified as held for sale.
The California Franchise Tax Board is examining Sempra’s California unitary group for tax years 2018 and 2019. The reconciliation above includes unrecognized tax benefits through 2025 related to this matter.
We have previously included unrecognized income tax benefits in our annual tabular reconciliation related to our investment in SI Partners. As a result of the held for sale classification and the anticipated closing of the sale, we believe it is reasonably possible that a decrease of up to $150 million in unrecognized income tax benefits related to outside basis differences and Mexico tax liabilities will be necessary in the next 12 months. These changes in unrecognized income tax benefits would not decrease or increase the ETR.
In April 2023, the IRS issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting for gas repairs expenditures. SDG&E and SoCalGas elected this change in tax accounting method in Sempra’s consolidated 2023 income tax return filing and recorded additional income tax benefits of $34 million and $97 million, respectively, in 2023. Additionally, SoCalGas updated its assessment of prior years’ unrecognized income tax benefits and recorded an income tax benefit of $43 million in 2023 for previously unrecognized income tax benefits pertaining to gas repairs expenditures. Sempra elected this change in tax accounting method in its consolidated 2023 income tax return filing.
Amounts accrued for interest and penalties associated with unrecognized income tax benefits are included in Income Tax Expense on the Consolidated Statements of Operations. Sempra accrued $17 million and $15 million at December 31, 2025 and 2024, respectively, on the Consolidated Balance Sheets, and recorded $2 million in 2025, negligible amounts in 2024, and $2 million in 2023 on the Consolidated Statements of Operations for interest and penalties. SDG&E and SoCalGas each accrued negligible amounts for interest expense and penalties at December 31, 2025 and 2024 on their Balance Sheets, and recorded negligible amounts for interest expense and penalties on their Statements of Operations for all periods presented.
INCOME TAX AUDITS
Sempra is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. We remain subject to examination for U.S. federal tax years after 2021. We are subject to examination by major state tax jurisdictions for tax years after 2012. Certain major foreign income tax returns for tax years 2014 through the present are open to examination.
SDG&E and SoCalGas are subject to U.S. federal income tax and state income tax. They remain subject to examination for U.S. federal tax years after 2021 and state tax years after 2012.
In addition, Sempra has filed protests to contest proposed state audit adjustments for tax years 2009 through 2012. The pre-2013 tax years for our major state tax jurisdictions are closed to new issues; therefore, no additional tax may be assessed by the taxing authorities for these tax years.
SI Partners has filed an administrative appeal to contest a tax assessment issued by the Servicio de Administración Tributaria for tax year 2016. In 2025, we increased unrecognized income tax benefits and will have the opportunity to contest any unresolved issues through the Mexican courts.

Historical Timeline

Fiscal YearFiled
2025Feb 26, 2026Showing above
2024Feb 25, 2025
2023Feb 27, 2024
2022Feb 28, 2023
2021Feb 25, 2022
2020Feb 25, 2021
2019Feb 27, 2020
2018Feb 26, 2019
2017Feb 27, 2018
2016Feb 28, 2017
2015Feb 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.

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