Southwest Gas Holdings, Inc.SWX

Southwest Gas Holdings, Inc. Income Taxes Disclosure

10-KFiled Feb 25, 20267 min read
Note 11 - Income Taxes
Southwest Gas Holdings, Inc.:
The following is a summary of income before taxes from continuing operations:
Year ended December 31,
(Thousands of dollars)202520242023
Income from continuing operations before income taxes
$330,873 $254,136 $169,404 
Income tax expense (benefit) consists of the following:
Year Ended December 31,
(Thousands of dollars)202520242023
Current:
Federal$(24)$1,289 $(66)
State1,777 570 402 
Total current tax expense
1,753 1,859 336 
Deferred:
Federal55,547 28,627 19,400 
State38,737 2,671 9,674 
Total deferred tax expense
94,284 31,298 29,074 
Total income tax expense
$96,037 $33,157 $29,410 
A reconciliation of the U.S. federal statutory rate to the Southwest Gas Holdings, Inc. consolidated effective income tax rate (and the sources of these differences and the effect of each) are summarized as follows:
Year Ended December 31,
202520242023
(Thousands of dollars)
Amount
Percent
Amount
Percent
Amount
Percent
U.S. federal statutory income tax
$69,483 21.0 %$53,369 21.0 %$35,575 21.0 %
State and local income tax, net of deferred benefit (1)
40,515 12.2 %3,230 1.2 %9,420 5.6 %
Tax credits(2,213)(0.6)%(1,716)(0.7)%(440)(0.3)%
Changes in valuation allowance— — 1,032 0.4 %— — 
Nontaxable and nondeductible items:
Corporate-owned life insurance(2,242)(0.7)%(1,842)(0.7)%(2,196)(1.3)%
   Other848 0.3 %589 0.2 %197 0.1 %
Changes in unrecognized tax benefits(182)(0.1)%(1,849)(0.7)%(23)— %
Other adjustments:
Amortization of excess deferred taxes(10,172)(3.1)%(19,656)(7.7)%(23,112)(13.6)%
MountainWest sale
— — — — 9,989 5.9 %
Total income tax expense and effective income tax rate
$96,037 29.0 %$33,157 13.0 %$29,410 17.4 %
(1) State taxes in Arizona made up the majority (greater than 50%) of the tax effect in this category. In addition, this reflects the impact of the revised state apportionment rates recorded in 2025.
Total cash paid for income taxes, net of refunds, are detailed below. Please note that the table below includes totals for both continuing and discontinued operations.
Year Ended December 31,
(Thousands of dollars)202520242023
Federal$24,500 $(350)$(2,421)
State:
California8,502 — — 
Illinois2,060 — — 
Indiana
— 509 — 
Maryland
— 1,104 — 
Massachusetts— 512 — 
Pennsylvania
— — 837 
Texas
— — 723 
Other states
4,197 800 1,045 
Canada1,229 7,330 9,181 
Total income taxes paid, net
$40,488 $9,905 $9,365 
Deferred tax assets and liabilities consist of the following:
December 31,
(Thousands of dollars)20252024
Deferred tax assets:
Deferred income taxes for future amortization of ITC and excess deferred taxes$78,826 $81,802 
Net operating losses146,287 144,172 
Other3,848 2,107 
Valuation allowance— (1,117)
Total deferred tax assets
228,961 226,964 
Deferred tax liabilities:
Property-related items, including accelerated depreciation1,119,822 1,020,885 
Regulatory balancing accounts1,459 3,988 
Debt-related costs1,055 1,384 
Employee benefits
29,680 24,118 
Other54,257 34,571 
Total deferred tax liabilities
1,206,273 1,084,946 
Net noncurrent deferred tax liabilities$977,312 $857,982 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,
(Thousands of dollars)20252024
Unrecognized tax benefits at beginning of year$773 $2,622 
Gross increases – tax positions in prior period95 83 
Gross increases – current period tax positions— 171 
Gross decreases – current period tax positions(277)— 
Lapse in statute of limitations— (2,103)
Unrecognized tax benefits at end of year$591 $773 
At December 31, 2025, the Company has a U.S. federal net operating loss carryforward of $599.4 million on a tax return basis. As of the same date, the Company has $435.7 million of state net operating loss carryforwards on a tax return basis. Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards will begin to expire in 2041.

Southwest Gas Corporation:
Certain amounts in this disclosure have been revised as discussed in Note 3 - Revision of Previously Issued Financial Statements.
The following is a summary of income before taxes:
Year ended December 31,
(Thousands of dollars)202520242023
Total income before income taxes$353,131 $304,765 $270,574 
 Income tax expense (benefit) consists of the following:
Year Ended December 31,
(Thousands of dollars)202520242023
Current:
Federal$(96,017)$(12)$(21)
State(9,051)105 98 
Total current tax expense
(105,068)93 77 
Deferred:
Federal156,138 39,730 30,980 
State1,753 2,846 11,105 
Total deferred tax expense
157,891 42,576 42,085 
Total income tax expense$52,823 $42,669 $42,162 
A reconciliation of the U.S. federal statutory rate to the Southwest Gas effective income tax rate (and the sources of these differences and the effect of each) are summarized as follows:
Year Ended December 31,
202520242023
(Thousands of dollars)
Amount
Percent
Amount
Percent
Amount
Percent
U.S. federal statutory income tax
$74,157 21.0 %$64,001 21.0 %$56,821 21.0 %
State and local income tax, net of deferred benefit (1)
(7,298)(2.1)%2,946 1.0 %10,773 4.0 %
Tax credits(2,213)(0.6)%(1,716)(0.6)%(440)(0.2)%
Nontaxable and nondeductible items(1,470)(0.3)%(1,057)(0.3)%(2,100)(0.7)%
Changes in unrecognized tax benefits(182)(0.1)%(1,849)(0.6)%(23)— %
Other adjustments:
Amortization of excess deferred taxes(10,171)(2.9)%(19,656)(6.5)%(22,869)(8.5)%
Total income tax expense and effective income tax rate
$52,823 15.0 %$42,669 14.0 %$42,162 15.6 %
(1) State taxes in Arizona made up the majority (greater than 50%) of the tax effect in this category. In addition, this reflects the impact of the revised state apportionment rates recorded in 2025.

Income taxes paid, net of refunds, are as follows:
Year Ended December 31,
(Thousands of dollars)202520242023
Federal
$585 $— $— 
California
421 — — 
Total income taxes paid, net
$1,006 $— $— 
Deferred tax assets and liabilities consist of the following:
December 31,
(Thousands of dollars)20252024
Deferred tax assets:
Deferred income taxes for future amortization of ITC and excess deferred taxes$78,826 $81,802 
Net operating losses89,174 188,458 
Other3,258 2,543 
Total deferred tax assets
171,258 272,803 
Deferred tax liabilities:
Property-related items, including accelerated depreciation1,119,822 1,064,187 
Regulatory balancing accounts1,459 4,157 
Debt-related costs1,055 1,443 
Employee benefits31,865 27,337 
Other44,978 29,928 
Total deferred tax liabilities
1,199,179 1,127,052 
Net deferred tax liabilities$1,027,921 $854,249 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,
(Thousands of dollars)20252024
Unrecognized tax benefits at beginning of year$773 $2,622 
Gross increases – tax positions in prior period95 83 
Gross increases – current period tax positions— 171 
Gross decreases – current period tax positions(277)— 
Lapse in statute of limitations— (2,103)
Unrecognized tax benefits at end of year$591 $773 
Southwest Gas Holdings, Inc. and Southwest Gas Corporation:
In assessing whether uncertain tax positions should be recognized in its financial statements, management first determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluations of whether a tax position has met the more-likely-than-not recognition threshold, management presumes that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. For tax positions that meet the more-likely-than-not recognition threshold, management measures the amount of benefit recognized in the financial statements at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Unrecognized tax benefits are recognized in the first financial reporting period in which information becomes available indicating that such benefits will more-likely-than-not be realized. For each reporting period, management applies a consistent methodology to measure unrecognized tax benefits, and all unrecognized tax benefits are reviewed periodically and adjusted as circumstances warrant. Measurement of unrecognized tax benefits is based on management’s assessment of all relevant information, including prior audit experience, the status of audits, conclusions of tax audits, lapsing of applicable statutes of limitation, identification of new issues, and any administrative guidance or developments.
The Company and Southwest Gas recognize interest expense and penalties related to income tax matters in income tax expense. The amount of tax-related interest income for 2023 through 2025 was not significant.
The Company and its subsidiaries file a consolidated federal income tax return in the U.S. and in various states. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations for years before 2021.
The Company and each of its subsidiaries, including Southwest Gas, participate in a tax sharing agreement to establish the method for allocating tax benefits and losses among members of the consolidated group. The consolidated federal income tax is apportioned among the subsidiaries using a separate return method. According to the terms of the tax sharing agreement, the Company will pay Southwest Gas for the tax attributes that will be utilized in 2025 (primarily used to offset the taxable gain on the sale of Centuri).
In April 2023, the IRS issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting that taxpayers may use to determine whether expenditures to repair, maintain, replace, or improve natural gas transmission and distribution property must be capitalized for tax purposes. Southwest Gas adopted this change in tax accounting method with its 2024 U.S. federal income tax return filing in 2025, and the safe harbor method increased the total tax repair deductions. Southwest Gas Holdings, Inc. and Southwest Gas’ deferred taxes reflect the impacts of this adoption and are not material to the consolidated financial statements overall.

Historical Timeline

Fiscal YearFiled
2025Feb 25, 2026Showing above
2024Feb 26, 2025
2023Feb 28, 2024
2022Feb 28, 2023
2021Mar 1, 2022
2020Feb 25, 2021
2019Mar 2, 2020
2018Feb 28, 2019
2017Feb 28, 2018
2016Feb 28, 2017

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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