TYLER TECHNOLOGIES INCTYL
TYLER TECHNOLOGIES INC Income Taxes Disclosure
INCOME TAX
We adopted ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" on a prospective basis beginning with the year ended December 31, 2025.
Income before provision for income taxes was as follows:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | 387,841 | $ | 306,402 | $ | 196,538 | |||||||||||
| Foreign | 2,477 | 1,765 | 1,698 | ||||||||||||||
| Income before income taxes | $ | 390,318 | $ | 308,167 | $ | 198,236 | |||||||||||
Income tax provision on income from operations consists of the following:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 10,053 | $ | 60,612 | $ | 85,715 | |||||||||||
| State | 20,004 | 14,807 | 19,803 | ||||||||||||||
| Foreign | 807 | 385 | 503 | ||||||||||||||
| Total current provision for taxes | 30,864 | 75,804 | 106,021 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | 41,996 | (27,089) | (63,649) | ||||||||||||||
| State | 1,855 | (3,574) | (10,055) | ||||||||||||||
| Total deferred provision for (benefit from) taxes | 43,851 | (30,663) | (73,704) | ||||||||||||||
| Income tax provision | $ | 74,715 | $ | 45,141 | $ | 32,317 | |||||||||||
A reconciliation of the provision for income taxes to the amount computed by applying the 21% U.S. statutory income tax rate to our effective income tax expense rate for operations after the adoption of ASU 2023-09 is as follows:
| Years Ended December 31, | |||||||||||
| 2025 | % | ||||||||||
| U.S. federal statutory tax rate | $ | 81,967 | 21.0 | % | |||||||
State and local income taxes. net of federal income tax effect1 | 17,658 | 4.5 | |||||||||
| Foreign tax effects | 287 | 0.1 | |||||||||
Effect of cross-border tax laws | (121) | — | |||||||||
| Tax credits | (18,398) | (4.7) | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Excess tax benefits of share-based compensation | (15,047) | (3.9) | |||||||||
| Executive compensation | 4,009 | 1.0 | |||||||||
| Other | 2,222 | 0.6 | |||||||||
Changes in uncertain tax positions | 2,138 | 0.5 | |||||||||
| Effective tax rate | $ | 74,715 | 19.1 | % | |||||||
A reconciliation of the provision for income taxes to the amount computed by applying the 21% U.S. statutory income tax rate to our effective income tax expense rate for operations before the adoption of ASU 2023-09 is as follows:
| Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal income tax expense at statutory rate | $ | 64,715 | $ | 41,630 | |||||||
| State income tax, net of federal income tax benefit | 8,917 | 6,881 | |||||||||
| Excess tax benefits of share-based compensation | (21,143) | (9,325) | |||||||||
| Tax credits | (22,095) | (20,494) | |||||||||
| Non-deductible business expenses | 4,786 | 5,191 | |||||||||
| Uncertain tax positions | 10,109 | 7,647 | |||||||||
| Other, net | (148) | 787 | |||||||||
| $ | 45,141 | $ | 32,317 | ||||||||
The tax effects of the major items recorded as deferred tax assets and liabilities as of December 31 are:
| 2025 | 2024 | ||||||||||
| Deferred income tax assets: | |||||||||||
| Capitalized research and experimental expenditures | $ | 96,038 | $ | 157,812 | |||||||
| Operating expenses not currently deductible | 11,961 | 8,593 | |||||||||
Share-based compensation and other employee benefit plans | 24,842 | 22,095 | |||||||||
| Loss and credit carryforwards | 5,349 | 5,836 | |||||||||
| Deferred revenue | 7,516 | 1,670 | |||||||||
| Other | 9 | 55 | |||||||||
| Total deferred income tax assets | 145,715 | 196,061 | |||||||||
| Valuation allowance | (1,133) | (794) | |||||||||
| Total deferred income tax assets, net of valuation allowance | 144,582 | 195,267 | |||||||||
| Deferred income tax liabilities: | |||||||||||
| Intangible assets | (211,411) | (223,459) | |||||||||
| Property and equipment | (8,794) | (5,624) | |||||||||
| Prepaid expenses | (19,440) | (13,687) | |||||||||
| Total deferred income tax liabilities | (239,645) | (242,770) | |||||||||
| Net deferred income tax liabilities | $ | (95,063) | $ | (47,503) | |||||||
On July 4, 2025, the reconciliation bill, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA includes a broad range of tax reform provisions that may affect our Company. The OBBBA allows an elective deduction for domestic Research and Development (“R&D”), a reinstatement of elective 100% first-year bonus depreciation, and a more favorable tax rate on Foreign-Derived Deduction Eligible Income and income from non-U.S. subsidiaries (“Net CFC Tested Income”), among other provisions. In 2025, we recognized the effects of the OBBBA, which resulted in a $72.9 million decrease in our deferred tax asset associated with capitalized research and experimental expenditures and a corresponding reduction in current income tax liabilities. The legislation did not have a material impact on our income tax expense for 2025.
As of December 31, 2025, we had after-tax federal and state net operating loss and net tax credit carryforwards of $5.3 million, that will begin expiring in 2033, if not utilized. The acquired carryforwards are subject to an annual limitation but are expected to be realized. A valuation allowance was recorded against a state research and development credit carryforward in 2025 for $1.1 million due to state taxable income limitations on credit utilization. We believe it is more likely than not that all other deferred tax assets will be realized. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income or reversing taxable temporary differences are revised.
The following table provides a reconciliation of the gross unrecognized tax benefits from uncertain tax positions for the years ended December 31:
| 2025 | 2024 | ||||||||||
| Balance at beginning of period | $ | 29,755 | $ | 20,869 | |||||||
| Additions for tax positions of prior period | 2,095 | 4,970 | |||||||||
| Reductions for tax positions of prior period | (103) | — | |||||||||
| Additions for tax positions of current period | 5,078 | 4,346 | |||||||||
| Settlements | (496) | — | |||||||||
| Expiration of statutes of limitations | (4,190) | (430) | |||||||||
| Balance at end of period | $ | 32,139 | $ | 29,755 | |||||||
As of December 31, 2025 and December 31, 2024, we had uncertain tax positions of $34.3 million and $32.2 million, including interest and penalties of $2.2 million and $2.4 million, respectively, recorded within deferred tax liabilities, other long-term assets, and other long-term liabilities in our consolidated balance sheets. The total amount of unrecognized tax benefits, net of the federal income tax benefit of state taxes, if recognized, that would affect the effective tax rate is $31.0 million, $28.6 million and $20.1 million as of December 31, 2025, 2024, and 2023, respectively.
We are subject to U.S. federal income tax, as well as income tax of multiple state, local and foreign jurisdictions. We are routinely subject to income tax examinations by these taxing jurisdictions, but we do not have a history of, nor do we expect any material adjustments as a result of these examinations. With few exceptions, major U.S. federal, state, local and foreign jurisdictions are no longer subject to examination for years before 2021. As of February 18, 2026, no significant adjustments have been proposed by any taxing jurisdiction.
The Company paid income taxes in the following jurisdictions as of December 31:
| 2025 | |||||
| U.S federal taxes | $ | 26,007 | |||
| State and local taxes | |||||
| California | 2,289 | ||||
| Other | 11,825 | ||||
| Foreign taxes | 640 | ||||
| Total income taxes paid | $ | 40,761 | |||
The amount of cash income taxes we paid during the years ended December 31, 2024 and 2023 was $84.2 million and $142.8 million, respectively.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 19, 2021 | |
| 2019 | Feb 19, 2020 | |
| 2018 | Feb 20, 2019 | |
| 2017 | Feb 21, 2018 | |
| 2016 | Feb 22, 2017 | |
| 2015 | Feb 24, 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.