Turning Point Brands, Inc. Income Taxes Disclosure

Note 15. Income Taxes 

 

The components of income before provisions for income taxes for year ended December 31, 2025, as required by ASU 2023-09 is as follows:

 

 

		2025
Domestic			80,974
Foreign			2,169
Total			83,143

 

 

Income tax expense (benefit) for the years ended December 31 consists of the following components:

 

		2025												2024												2023
		Current				Deferred				Total				Current				Deferred				Total				Current				Deferred				Total
Federal		$	5,048			$	7,822			$	12,870			$	14,005			$	240			$	14,245			$	13,404			$	4,091			$	17,495
State and Local			922				1,109				2,031				2,405				279				2,684				3,587				2,166				5,753
Foreign			90				-				90				-				-				-				(16	)			767				751
Total		$	6,060			$	8,931			$	14,991			$	16,410			$	519			$	16,929			$	16,975			$	7,024			$	23,999

 

 

Deferred tax assets and liabilities consists of:

 

	December 31,					December 31,
	2025					2024
	Assets			Liabilities		Assets			Liabilities
Inventory	$	4,363		$	-	$	4,802		$	-
Property, plant, and equipment		-			3,188		-			3,433
Goodwill and other intangible assets		-			11,204		-			3,549
Foreign NOL carryforward		1,218			-		1,505			-
State NOL carryforward		2,211			-		2,339			-
Unrealized loss on investments		3,868			91		3,846			-
Leases		3,928			3,706		3,278			3,004
Stock compensation		4,116			-		4,306			-
Insurance receivable		-			3,689		-			3,728
Capital loss carryforward		4,071			-		4,108			-
Other		4,241			3,056		5,117			2,006
Gross deferred income taxes		28,016			24,934		29,301			15,720
Valuation allowance		(11,371	)		-		(12,586	)		-
Net deferred income taxes	$	16,645		$	24,934	$	16,715		$	15,720

 

At December 31, 2025, the Company had state net operating loss (“NOL”) carryforwards for income tax purposes of approximately $22.2 million, which expire between 2034 and 2045, $27.6 million of which has an indefinite carryforward period. The Company has determined that, at December 31, 2025 and 2024 its ability to realize future benefits of its state NOL carryforwards does not meet the “more likely than not” criteria in ASC 740, Income Taxes. Therefore, a valuation allowance for state NOL carryforwards of $2.4 million and $3.1 million has been recorded at December 2025 and 2024, respectively. The Company has determined that at December 31, 2025 and 2024, its ability to realize future benefits of its capital loss carryforward, unrealized loss on investments and foreign NOL carryforwards do not meet the “more likely than not” criteria in ASC 740, Income Taxes. Therefore, a valuation allowance for capital loss carryforward of $4.1 million, unrealized loss on investments of $3.1 million and foreign NOL carryforwards of $1.4 million has been recorded at December 31, 2025 and a valuation allowance for capital loss carryforward of $4.1 million, unrealized loss on investments of $3.1 million and foreign NOL carryforwards of $1.8 million has been recorded as of December 31, 2024. 

 

ASC 740-10-25 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company has determined that they did not have any uncertain tax positions requiring recognition as a result of the provisions of ASC 740-10-25. The Company’s policy is to recognize interest and penalties accrued on uncertain tax positions as part of interest expense. For the years ended December 31, 2025, 2024, and 2023, no estimated interest or penalties were recognized for the uncertainty of tax positions taken. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In general, the Company is no longer subject to U.S. federal and state tax examinations for years prior to 2022.

 

In 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Security Act (the “CARES Act”) to provide certain relief as a result of the COVID-19 Pandemic. The CARES Act provides tax relief, along with other stimulus measures, including a provision for an Employee Retention Credit (“ERC”). ERC is a refundable tax credit for employers who kept employees on their payroll during the COVID-19 Pandemic. The Company applied for the ERC in 2024.

 

The Company considered the ERC to be a contingent gain. During the year ended December 31, 2025, the Company received and recorded an employee retention credit totaling $5.5 million, within the “Other income, net” in our Consolidated Statements of Income.

 

Reconciliation of the federal statutory rate and the effective income tax rate for the year ended December 31, 2025 as required by ASU 2023-09 (see New Accounting Pronouncements caption in Note 2 for more information):

 

		2025
		Amount				Percent
Federal statutory rate		$	17,460				21.0	%
Foreign tax effects			(320	)			(0.4	)%
State and local income taxes, net of federal benefit (1)			2,159				2.6	%
Effect of cross-boarder tax laws
Global Intangible Low-Taxed Income (GILTI)			210				0.3	%
Non-taxable or non-deductible items
Stock Compensation			(4,229	)			(5.1	)%
Non-deductible compensation			2,552				3.1	%
Other			68				0.1	%
Tax credits
Research and development (R&D) credits			(142	)			(0.2	)%
Foreign tax credits			(72	)			(0.1	)%
Noncontrolling interest in joint venture earnings			(1,938	)			(2.3	)%
Other			(411	)			(0.5	)%
Change in valuation allowance			(346	)			(0.5	)%
Effective income tax rate		$	14,991				18.0	%

 

(1) State taxes in Tennessee, California, and Michigan made up the majority (greater than 50%) of the tax effect in this category.

 

Reconciliation of the federal statutory rate and effective income tax rate for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09 is as follows:

 

		2024				2023
Federal statutory rate			21.0	%			21.0	%
Foreign rate differential			(0.1	)%			(0.1	)%
State taxes			3.4	%			4.3	%
Permanent differences			(0.6	)%			(0.1	)%
Other			0.6	%			0.0	%
Valuation allowance			1.8	%			13.6	%
Effective income tax rate			26.1	%			38.7	%

 

The permanent differences for the years ended December 31, 2025, 2024 and 2023 are not significant in the aggregate. 

 

The amount of cash taxes paid by the Company for the year ended December 31, 2025, as required by ASU 2023-09 is as follows:

 

		2025
Federal			8,601
State and Local			1,783
Foreign			-
Income taxes, net of amounts refunded			10,384