TRANSCAT INC Income Taxes Disclosure

NOTE 4 – INCOME TAXES

 

Transcat’s income before income taxes on the Consolidated Statements of Income is as follows (amounts in thousands):

 

		FY 2026				FY 2025				FY 2024
United States		$	7,760			$	16,983			$	15,064
Foreign			229				1,343				3,375
Total		$	7,989			$	18,326			$	18,439

 

The provision for income taxes for fiscal years 2026, 2025 and 2024 is as follows:

 

		FY 2026				FY 2025				FY 2024
Current Tax Provision:
Federal		$	690			$	2,437			$	4,099
State			905				971				1,067
Foreign			191				383				1,185
		$	1,786			$	3,791			$	6,351
Deferred Tax (Benefit) Provision:
Federal		$	1,179			$	182			$	(809	)
State			(88	)			(173	)			(316	)
Foreign			(264	)			11				(434	)
		$	827			$	20			$	(1,559	)
Provision for Income Taxes		$	2,613			$	3,811			$	4,792

 

A reconciliation of the income tax provision computed by applying the statutory U.S. federal income tax rate and the income tax provision reflected in the Consolidated Statements of Income for fiscal year 2026 is as follows (amounts in thousands):

 

		FY 2026				(Effective Tax Rate)
Federal Income Tax at Statutory Rate		$	1,678				21.0	%
State Income Taxes, net of federal benefit^			646				8.1	%
Federal, State and Foreign Tax Credits			-				0.0	%
Foreign tax effects:
Canada:
Deferred tax basis adjustment			(232	)			(2.9)	%
Other			51				0.6	%
Other foreign jurisdictions			59				0.7	%
Effect of cross-border tax laws:
Other			(9	)			(0.1)	%
Nontaxable or nondeductible items:
Restricted Stock award shortfall (windfall)			153				1.9	%
162(m) Limitation			236				3.0	%
Other Adjustments, net			31				0.4	%
Total		$	2,613				32.7	%

 

^ The state and local jurisdictions that contribute the majority (greater than 50%) of the tax effect in this category are Massachusetts, Minnesota, California, New York, Pennsylvania and Puerto Rico.

 

A reconciliation of the income tax provision computed by applying the statutory U.S. federal income tax rate and the income tax provision reflected in the Consolidated Statements of Income for fiscal years 2025 and 2024 is as follows (amounts in thousands):

 

		FY 2025				FY 2024
Federal Income Tax at Statutory Rate		$	3,848			$	3,872
State Income Taxes, net of federal benefit			630				593
Federal, State and Foreign Tax Credits			-				(87	)
Foreign Rate Differential			110				41
Tax Impact of Equity Awards			(1,130	)			(634	)
162(m) Limitation			276				805
Non-Deductible Acquisition Costs			-				71
GILTI and 78 Gross Up			(30	)			112
Other, net			107				19
Total		$	3,811			$	4,792

 

		March 28,				March 29,
		2026				2025
Deferred Tax Assets:
Accrued Liabilities		$	539			$	423
Lease Liabilities			7,780				5,707
Performance-Based Stock Award Grants			1,709				1,053
Net Operating losses			414				337
Inventory Reserves			57				61
Non-Qualified Deferred Compensation Plan			-				24
Post Retirement Health Care Plans			253				262
Stock-Based Compensation			1,251				870
Capitalized Inventory Costs			279				183
Other			904				829
Total Deferred Tax Assets		$	13,186			$	9,749
Deferred Tax Liabilities:
Goodwill and Intangible Assets		$	(5,830	)		$	(5,701	)
Right of Use Assets			(7,512	)			(5,635	)
Depreciation			(10,011	)			(7,667	)
Other			-				(32	)
Total Deferred Tax Liabilities		$	(23,353	)		$	(19,035	)
Net Deferred Tax Liabilities		$	(10,167	)		$	(9,286	)

 

Income taxes paid (net of refunds) for the year ended March 28, 2026, are disaggregated by jurisdiction as follows (in thousands):

 

		March 28,
		2026
U.S. Federal		$	1,284
State:
Minnesota			193
California			57
New York			41
Wisconsin			41
Other			314
Canada			287
Other Foreign			-
Total Income Taxes Paid		$	2,217

 

The Company files income tax returns with the U.S. government and various states as well as foreign governments. Open fiscal years subject to U.S. Government federal examination are 2023 through 2025. Open fiscal years subject to state examination are 2021 through 2025. The Company also files in Canada and Ireland.  Open fiscal years subject to examination for Canada are 2022 through 2025; open fiscal years subject to examination for Ireland are 2022 to 2025. There are no income tax years currently under examination by the Internal Revenue Service, states, Canadian and Irish tax authorities. The Company's foreign subsidiary undistributed earnings are considered to be permanently reinvested. At  March 28, 2026, the Company had net operating loss (NOL) carryforwards of $1.3 million in the U.S. and $0.7 million in Ireland, which could be used to offset future taxable income and reduce income tax expense. These NOL carryforwards do not expire. 

 

The Company’s policy regarding interest and/or penalties related to income tax matters is to recognize such items as a component of the income tax provision. The Company recognized no interest expense or penalties associated with uncertain tax benefits accrued for fiscal years 2026, 2025 and 2024. In accordance with applicable accounting guidance, the amount of unrecognized tax liability from uncertain positions was $0 at year-end for fiscal years 2026, 2025 and 2024.

 

The Company assesses its deferred tax assets annually for expected utilization. If deemed necessary, valuation allowances are established to reduce the deferred tax assets to their net realizable value to the extent it is more likely than not that some portion or all of the deferred tax assets will not be realized based on the character of the carryforward item, the associated taxing jurisdiction, the relevant history for the particular item, the applicable expiration dates, and identified actions under the control of the Company in realizing such assets. The Company assesses the available positive and negative evidence surrounding the recoverability of the deferred tax assets and applies its judgment in estimating the amount of valuation allowance necessary. The Company has determined that a valuation allowance of $0 is appropriate for fiscal years 2026, 2025 and 2024.

 

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted into law. The legislation includes several changes to U.S. federal income tax law that generally allow for more favorable deductibility of certain business expenses beginning in calendar year 2025, including the restoration of immediate expensing for domestic research and development expenditures and the reinstatement of 100% bonus depreciation for qualified property. The OBBBA also includes certain modifications to the U.S. taxation of foreign activity, including changes to rules governing foreign tax credits, Global Intangible Low-Taxed Income (“GILTI”), Foreign-Derived Intangible Income (“FDII”), and the Base Erosion and Anti-Abuse Tax (“BEAT”), among other changes. Most of these modifications to the U.S. taxation of foreign activity are generally effective for tax years beginning after December 31, 2025.  Certain benefits from the OBBBA, such as utilizing the restored 100% bonus depreciation rules for assets acquired after January 19, 2025, were included in the provision for income taxes for fiscal year 2026. The impacts of the benefits of the OBBBA were not material to the provision for income taxes for fiscal year 2026.