VEECO INSTRUMENTS INC Income Taxes Disclosure
Note 15 — Income Taxes
The amounts of income (loss) before income taxes attributable to domestic and foreign operations were as follows:
Year ended December 31, | |||||||||
| 2025 | | 2024 | | 2023 | ||||
(in thousands) | |||||||||
Domestic | $ | 35,728 | $ | 99,711 | $ | (33,383) | |||
Foreign |
| 3,659 |
| (30,877) |
| 5,045 | |||
Total | $ | 39,387 | $ | 68,834 | $ | (28,338) | |||
Significant components of the expense (benefit) for income taxes consisted of the following:
Year ended December 31, | |||||||||
| 2025 | | 2024 | | 2023 | ||||
(in thousands) | |||||||||
Current: | |||||||||
Federal | $ | 4,313 | $ | 2,087 | $ | 3,299 | |||
Foreign |
| 2,723 |
| 1,365 |
| 1,136 | |||
State and local |
| (57) |
| 397 |
| (194) | |||
Total current expense (benefit) for income taxes |
| 6,979 |
| 3,849 |
| 4,241 | |||
Deferred: | |||||||||
Federal |
| (1,187) |
| (1,599) |
| (3,026) | |||
Foreign |
| (1,216) |
| (6,684) |
| 512 | |||
State and local |
| (579) |
| (446) |
| 303 | |||
Total deferred expense (benefit) for income taxes |
| (2,982) |
| (8,729) |
| (2,211) | |||
Total expense (benefit) for income taxes | $ | 3,997 | $ | (4,880) | $ | 2,030 | |||
In December 2023, the FASB issued ASU 2023-09: Improvements to Income Tax Disclosures (Topic 740), which requires public business entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid for the annual periods beginning after December 15, 2024. The Company adopted ASU 2023-09 on a retrospective basis effective December 31, 2025 for the years ended December 31, 2025, 2024, and 2023 for comparability and consistency purposes.
The income tax expense (benefit) was reconciled to the tax expense computed at the U.S. federal statutory tax rate as follows:
Year ended December 31, | ||||||||||||||||||
| 2025 | | 2024 | | 2023 | |||||||||||||
(in thousands) | ||||||||||||||||||
$ | 8,271 | 21.0 | % | $ | 14,455 | 21.0 | % | $ | (5,951) | 21.0 | % | |||||||
State taxes, net of U.S. federal impact (a) | (619) | (1.6) | % | (217) | (0.3) | % | 305 | (1.1) | % | |||||||||
Effect of cross-border tax laws |
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|
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Foreign-derived intangible income deduction | (5,672) | (14.4) | % | (3,846) | (5.6) | % | (8,171) | 28.9 | % | |||||||||
Other | 159 | 0.4 | % | 149 | 0.2 | % | (65) | 0.2 | % | |||||||||
Tax credits | ||||||||||||||||||
Research and development tax credits | (3,126) | (7.9) | % | (4,500) | (6.5) | % | (4,650) | 16.4 | % | |||||||||
Nontaxable and nondeductible items | ||||||||||||||||||
Tax benefits related to asset impairments | — | — | % | (12,476) | (18.1) | % | — | — | % | |||||||||
Share-based compensation | 3,133 | 8.0 | % | 206 | 0.3 | % | 1,998 | (7.1) | % | |||||||||
Extinguishment of debt | (164) | (0.4) | % | — | — | % | 19,349 | (68.3) | % | |||||||||
Merger costs | 1,424 | 3.6 | % | — | — | % | — | — | % | |||||||||
Other | (152) | (0.4) | % | 68 | 0.1 | % | 325 | (1.2) | % | |||||||||
Changes in valuation allowances | — | — | % | (149) | (0.2) | % | 350 | (1.2) | % | |||||||||
Federal Other | (106) | (0.3) | % | 189 | 0.3 | % | (159) | 0.6 | % | |||||||||
Changes in unrecognized tax benefits |
| 121 | 0.3 | % |
| 116 | 0.2 | % |
| (1,889) | 6.7 | % | ||||||
Foreign tax effects |
|
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Sweden |
|
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Changes in valuation allowances | 518 | 1.3 | % | 744 | 1.1 | % | — | — | % | |||||||||
Provision to return | (511) | (1.3) | % | — | — | % | — | — | % | |||||||||
Other | (72) | (0.2) | % | 352 | 0.5 | % | 18 | (0.1) | % | |||||||||
Germany | ||||||||||||||||||
Subnational tax | (559) | (1.4) | % | 6 | 0.0 | % | 399 | (1.4) | % | |||||||||
Other | 247 | 0.6 | % | 43 | 0.1 | % | (263) | 0.9 | % | |||||||||
Taiwan | ||||||||||||||||||
Other | 441 | 1.1 | % | 23 | 0.0 | % | 235 | (0.8) | % | |||||||||
China | ||||||||||||||||||
Other | 232 | 0.6 | % | 165 | 0.2 | % | 170 | (0.6) | % | |||||||||
Japan | ||||||||||||||||||
Other | 313 | 0.8 | % | (186) | (0.3) | % | (19) | 0.1 | % | |||||||||
Other foreign jurisdictions | 119 | 0.4 | % | (22) | (0.1) | % | 48 | (0.2) | % | |||||||||
Total provision (benefit) for income taxes | $ | 3,997 | 10.2 | % | $ | (4,880) | (7.1) | % | $ | 2,030 | (7.2) | % | ||||||
| (a) | For the years ended December 31, 2025, made up the majority of the state tax effect. For the year ended December 31, 2024, made up the majority of the state tax effect. For the year ended December 31, 2023, made up the majority of the state tax effect. |
Deferred income taxes reflect the effect of temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The tax effects of the temporary differences were as follows:
December 31, | ||||||
| 2025 | | 2024 | |||
(in thousands) | ||||||
Deferred tax assets: | ||||||
Inventory valuation |
| $ | 14,892 | $ | 12,500 | |
Net operating losses | 7,123 |
| 6,734 | |||
Credit carry forwards | 38,998 | 46,753 | ||||
Warranty and installation accruals | 2,267 |
| 2,054 | |||
Share-based compensation | 5,829 |
| 5,802 | |||
Contract liabilities | 10,216 | 7,775 | ||||
Operating leases | 8,196 | 8,620 | ||||
Research and experimental capitalization | 53,309 | 46,667 | ||||
Depreciation | 5,816 | 4,037 | ||||
Other | 4,197 |
| 5,033 | |||
Total deferred tax assets | 150,843 |
| 145,975 | |||
Valuation allowance | (13,046) |
| (11,797) | |||
Net deferred tax assets | 137,797 |
| 134,178 | |||
Deferred tax liabilities: | ||||||
Purchased intangible assets | 9,759 |
| 8,673 | |||
Operating leases | 5,635 | 6,003 | ||||
Total deferred tax liabilities | 15,394 |
| 14,676 | |||
Net deferred taxes |
| $ | 122,403 | $ | 119,502 | |
The Company does not permanently reinvest its earnings from certain foreign jurisdictions and has accrued for foreign tax withholdings of $1.1 million on its unremitted earnings as of December 31, 2025.
During the year ended December 31, 2025, the Company’s income tax expense of $4.0 million was primarily attributed to 1) a $8.3 million income tax expense associated with pre-tax income from operations, 2) a $3.1 million income tax expense related to adjustments made for share-based compensation, and 3) a $1.4 million income tax expense related to non-deductible merger costs, partially offset by 4) a $5.7 million income tax benefit related to foreign-derived intangible income, and 5) a $3.6 million tax benefit associated with research and development tax credits.
At December 31, 2025, the Company had U.S. federal research and development credits of $28.3 million that will expire between 2040 and 2045. Additionally, the Company has state and local NOL carryforwards of approximately $52.9 million (a net deferred tax asset of $3.8 million, net of federal tax benefits and before the valuation allowance) that will expire between 2026 and 2041. Finally, the Company has state credits of $34.6 million, some of which are indefinite and others that will expire between 2026 and 2040.
A roll-forward of the Company’s uncertain tax positions for all U.S. federal, state, and foreign tax jurisdictions was as follows:
December 31, | |||||||||
| 2025 | | 2024 | | 2023 | ||||
(in thousands) | |||||||||
Balance at beginning of year | $ | 16,878 | $ | 15,741 | $ | 16,110 | |||
Additions for tax positions related to current year |
| 1,681 |
| 2,497 |
| 2,596 | |||
Additions for tax positions related to prior years |
| 52 |
| 77 |
| 83 | |||
Reductions for tax positions related to prior years |
| (131) |
| (1,437) |
| (3,048) | |||
Settlements |
| — |
| — |
| — | |||
Balance at end of year | $ | 18,480 | $ | 16,878 | $ | 15,741 | |||
If the amount of unrecognized tax benefits at December 31, 2025 were recognized, the Company’s income tax provision would decrease by $16.3 million. The gross amount of interest and penalties accrued in income tax payable in the Consolidated Balance Sheets was approximately $0.8 million and $0.7 million at December 31, 2025 and 2024, respectively.
The Company, or one of its subsidiaries, files income tax returns in the United States federal jurisdiction, and various state, local, and foreign jurisdictions. All material consolidated federal income tax matters have been concluded for years through 2017 subject to subsequent utilization of NOLs generated in such years. All material state and local income tax matters have been reviewed through 2012. The majority of the Company’s foreign jurisdictions have been reviewed through 2015. The Company’s major foreign jurisdictions’ statutes of limitation remain open with respect to the tax years 2016 through 2024 for Germany, 2017 through 2024 for China, 2024 for Taiwan, and 2021 through 2024 for Singapore.
The amount of income taxes paid (refunded) were as follows:
Year ended December 31, | |||||||||
| 2025 | | 2024 | | 2023 | ||||
(in thousands) | |||||||||
U.S. federal taxes paid, net | $ | * | $ | 1,045 | $ | 2,801 | |||
Domestic state and local taxes paid, net | |||||||||
New Mexico |
| * |
| — |
| 282 | |||
Oregon |
| * |
| * |
| 474 | |||
Other |
| * |
| 237 |
| 374 | |||
Total state taxes paid, net | — | 237 | 1,130 | ||||||
Foreign |
|
|
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China |
| * |
| 390 |
| * | |||
Germany |
|
|
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Federal |
| * |
| 719 |
| * | |||
Subnational | * | 180 | * | ||||||
Japan | * | 253 | * | ||||||
Singapore | * | 153 | * | ||||||
Taiwan | * | * | 546 | ||||||
Other | * | 57 | 618 | ||||||
Total foreign taxes paid, net | — | 1,752 | 1,164 | ||||||
Total income taxes paid, net | $ | ** | $ | 3,034 | $ | 5,095 | |||
| * | The amount of income taxes paid during the year does not meet the five percent disaggregation threshold in the respective period. |
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.