VIRCO MFG CORPORATIONVIRC
VIRCO MFG CORPORATION Income Taxes Disclosure
Income Taxes
Our effective tax rate was 25.8%, and is based on recurring factors, including the forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and the recording of a partial valuation allowance on net deferred tax assets. The One Big Beautiful Bill ("OBBB") Act did not have a material impact on the Company's effective income tax rate for fiscal 2026, which the Company believes is representative of rates that will affect fiscal 2027. A summary reconciliation of the effective tax rate by amount and percentage is as follows:
| January 31, | |||||||||||
| 2026 | |||||||||||
| (In thousands, except percentages) | |||||||||||
| U.S. federal statutory rate | $ | 727 | 21.0 | % | |||||||
| State income taxes, net of federal income tax effect (1) | 150 | 4.3 | |||||||||
| Effect of changes in tax laws or rates enacted in current period: | |||||||||||
| Rate adjustment - state | — | — | |||||||||
| Effect of cross-border tax laws: | |||||||||||
| Foreign-derived intangible income | — | — | |||||||||
| Change in valuation allowance | — | — | |||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Meals and entertainment | 39 | 1.1 | |||||||||
| Other | 4 | 0.1 | |||||||||
| Change in unrecognized tax benefits | 21 | 0.6 | |||||||||
| Other | (46) | (1.3) | |||||||||
| Income tax expense | $ | 895 | 25.8 | % | |||||||
(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include California and Arkansas.
A summary reconciliation of the effective tax rate is as follows:
| January 31, | |||||||||||
| 2025 | |||||||||||
| (In thousands) | |||||||||||
| Statutory | $ | 6,011 | |||||||||
| State taxes (net of federal tax) | 1,197 | ||||||||||
| Change in valuation allowance | (15) | ||||||||||
| State rate adjustment | 83 | ||||||||||
| Change in unrecognized tax benefits | 65 | ||||||||||
| Stock compensation | (315) | ||||||||||
| Expirations of attributes | 21 | ||||||||||
| Permanent differences | (278) | ||||||||||
| Return to provision true-up | 11 | ||||||||||
| Income tax expense | $ | 6,780 | |||||||||
Significant components of the expense for income taxes attributed to continuing operations are as follows:
| January 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (In thousands) | |||||||||||
| Current | |||||||||||
| Federal | $ | 193 | $ | 5,142 | |||||||
| State | 139 | 1,408 | |||||||||
| 332 | 6,550 | ||||||||||
| Deferred | |||||||||||
| Federal | 476 | (75) | |||||||||
| State | 92 | 320 | |||||||||
| 568 | 245 | ||||||||||
| Change in valuation allowance | (5) | (15) | |||||||||
| 563 | 230 | ||||||||||
| Income tax expense | $ | 895 | $ | 6,780 | |||||||
Deferred tax assets and liabilities are comprised of the following:
| January 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets | |||||||||||
| Accrued vacation and sick leave | $ | 892 | $ | 2,238 | |||||||
| Retirement plans | 1,809 | 1,725 | |||||||||
| Insurance reserves | 214 | 227 | |||||||||
| Warranty | 126 | 126 | |||||||||
| Net operating loss carryforwards | 471 | 439 | |||||||||
| Operating lease liability | 9,172 | 9,505 | |||||||||
| Inventories | 1,700 | 1,709 | |||||||||
| Other | 476 | 580 | |||||||||
| 14,860 | 16,549 | ||||||||||
| Deferred tax liabilities | |||||||||||
| Tax in excess of book depreciation | (788) | (804) | |||||||||
| Right of use assets | (7,644) | (8,979) | |||||||||
| Other | (760) | (709) | |||||||||
| (9,192) | (10,492) | ||||||||||
| Valuation allowance | (231) | (236) | |||||||||
| Net long term deferred tax asset | $ | 5,437 | $ | 5,821 | |||||||
In assessing the realizability of deferred tax assets, the Company considers whether it is more-likely-than-not that some portion or all of its deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. As a part of this evaluation, the Company assesses all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, the availability of tax carry backs, tax-planning strategies, and results of recent operations (including cumulative income or losses in recent years), to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets.
At January 31, 2026, the Company recorded a partial valuation allowance of $231,000 on certain state net operating losses ("NOLs") to reduce the carrying amount of deferred tax assets to an amount that is more-likely-than-not to be realized. The net change in the valuation allowance for the year ended January 31, 2026, was a decrease of $5,000. At January 31, 2026, the Company had no NOLs for U.S. federal tax purposes and $8.2 million for state income tax purposes, expiring at various dates through January 31, 2045. The net change in the valuation allowance for the year ended January 31, 2025, was a decrease of $15,000. At January 31, 2025, the Company had no NOLs for U.S. federal tax purposes, and $6.3 million for state income tax purposes, expiring at various dates through January 31, 2041.
The following table summarizes the activity related to our gross unrecognized tax benefits:
| January 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (In thousands) | |||||||||||
| Beginning balances as of January 31, | $ | 157 | $ | 92 | |||||||
| Increases related to prior year tax positions | — | 15 | |||||||||
| Decreases related to prior year tax positions | — | — | |||||||||
| Increases related to current year tax positions | 17 | 57 | |||||||||
| Decreases related to lapsing of statute of limitations | (7) | (7) | |||||||||
| Ending balance as of January 31, | $ | 167 | $ | 157 | |||||||
At January 31, 2026, the Company’s unrecognized tax benefits associated with uncertain tax positions were $167,000, of which $132,000, if recognized, would favorably affect the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense which is consistent with the recognition of the items in prior reporting. The Company had recorded a liability for interest and penalties related to unrecognized tax benefits of $59,000 at January 31, 2026, and $50,000 at January 31, 2025. The year ended January 31, 2019 and subsequent years remain open for examination by the IRS and state tax authorities. The Company is not currently under IRS or state examination.
The specific timing of when the resolution of each tax position will be reached is uncertain. As of January 31, 2026, it is reasonably possible that unrecognized tax benefits will decrease by $4,600 within the next 12 months due to the expiration of the statute of limitations.
State taxes in California, Texas, Alabama and Maryland made up the majority (greater than 50%) of the Company's state and local taxes for the year ended January 31, 2026.
A summary of income taxes paid is as follows:
| January 31, | |||||||||||
| 2026 | |||||||||||
| (In thousands) | |||||||||||
| Federal | $ | — | |||||||||
| State | |||||||||||
| Alabama | 28 | ||||||||||
| Texas | 26 | ||||||||||
| Virginia | 18 | ||||||||||
| Maryland | 17 | ||||||||||
| South Carolina | 8 | ||||||||||
| Other | 11 | ||||||||||
| Total | $ | 108 | |||||||||
In the current year, the jurisdictions with cash taxes paid that equaled or exceeded 5% of total income taxes paid were Alabama, Texas, Virginia, Maryland and South Carolina.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Apr 8, 2026 | Showing above |
| 2025 | Apr 14, 2025 | |
| 2024 | Apr 12, 2024 | |
| 2023 | Apr 28, 2023 | |
| 2022 | Apr 28, 2022 | |
| 2021 | Apr 28, 2021 | |
| 2020 | Apr 30, 2020 | |
| 2019 | May 1, 2019 | |
| 2018 | Apr 27, 2018 | |
| 2017 | Apr 25, 2017 | |
| 2016 | Apr 26, 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.