VSE CORPVSEC
VSE CORP Income Taxes Disclosure
Income Taxes
The Company is subject to U.S. federal income tax as well as income tax in multiple state, local and foreign jurisdictions. With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examinations for the years before 2021 for federal and state income taxes in the U.S and various foreign jurisdictions.
The Company files consolidated federal income tax returns that include all of its U.S. subsidiaries. The components of income from continuing operations before income taxes were as follows (in thousands):
| For the years ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Domestic | $ | 62,037 | $ | 18,928 | $ | 14,284 | |||||||||||
| Foreign | 7,002 | 4,881 | 4,776 | ||||||||||||||
Income from continuing operations before income taxes | $ | 69,039 | $ | 23,809 | $ | 19,060 | |||||||||||
The components of the provision for income taxes from continuing operations were as follows (in thousands):
| For the years ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 10,422 | $ | 9,010 | $ | 6,792 | |||||||||||
| State | 2,191 | 1,495 | 1,066 | ||||||||||||||
| Foreign | 1,655 | 1,573 | 1,138 | ||||||||||||||
Total current | 14,268 | 12,078 | 8,996 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 1,944 | (6,569) | (3,951) | ||||||||||||||
| State | (1,234) | (923) | (557) | ||||||||||||||
| Foreign | 568 | (179) | 7 | ||||||||||||||
Total deferred | 1,278 | (7,671) | (4,501) | ||||||||||||||
| Provision for income taxes | $ | 15,546 | $ | 4,407 | $ | 4,495 | |||||||||||
The Company's effective tax rate differs from the federal statutory rate. A reconciliation of the provision for income taxes from continuing operations to the amount computed by applying the statutory federal income tax rate is as follows (in thousands):
| For the years ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
$ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
US federal statutory tax rate | $ | 14,498 | 21.0 | % | $ | 5,000 | 21.0 | % | $ | 4,003 | 21.0 | % | |||||||||||||||||||||||
| Increases (decreases) in tax resulting from: | |||||||||||||||||||||||||||||||||||
State and local income taxes, net of federal income tax effect (a) | 756 | 1.1 | % | 451 | 1.9 | % | 402 | 2.1 | % | ||||||||||||||||||||||||||
Foreign tax effects | |||||||||||||||||||||||||||||||||||
Germany | 798 | 1.2 | % | — | — | % | — | — | % | ||||||||||||||||||||||||||
Other foreign jurisdictions | (41) | — | % | 373 | 1.6 | % | 144 | 0.8 | % | ||||||||||||||||||||||||||
Effect of cross-border tax laws | |||||||||||||||||||||||||||||||||||
Foreign-derived intangible income | (3,753) | (5.4) | % | (1,892) | (8.0) | % | (615) | (3.2) | % | ||||||||||||||||||||||||||
Tax credits | (52) | (0.1) | % | (80) | (0.3) | % | (32) | (0.2) | % | ||||||||||||||||||||||||||
Changes in valuation allowances | 502 | 0.7 | % | 4 | — | % | (1) | — | % | ||||||||||||||||||||||||||
Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
Excess stock tax benefit | (1,421) | (2.1) | % | (772) | (3.2) | % | — | — | % | ||||||||||||||||||||||||||
Section 162(m) executive compensation | 3,809 | 5.5 | % | 1,444 | 6.1 | % | 554 | 2.9 | % | ||||||||||||||||||||||||||
Transaction costs | 1,053 | 1.5 | % | 489 | 2.0 | % | 477 | 2.5 | % | ||||||||||||||||||||||||||
Corporate-owned life insurance | — | — | % | (283) | (1.2) | % | (409) | (2.1) | % | ||||||||||||||||||||||||||
Other | (132) | (0.2) | % | 116 | 0.5 | % | 43 | 0.2 | % | ||||||||||||||||||||||||||
Other adjustments | |||||||||||||||||||||||||||||||||||
Other adjustments | (471) | (0.7) | % | (443) | (1.9) | % | (71) | (0.4) | % | ||||||||||||||||||||||||||
Effective tax rate | $ | 15,546 | 22.5 | % | $ | 4,407 | 18.5 | % | $ | 4,495 | 23.6 | % | |||||||||||||||||||||||
(a) State Taxes in CA, FL, KS, and VA made up the majority (greater than 50%) of the tax effect in this category. State income tax expense includes the effects of changes in valuation allowances related to state net operating losses, the impact of state conformity to federal income tax provisions, and the benefit of state income tax credits. | |||||||||||||||||||||||||||||||||||
During the year ended December 31, 2025, the Company recorded unrecognized tax benefits of approximately $3.1 million in connection with a recent acquisition. Because the identified tax exposures, including interest and penalties, are fully indemnified, recognition is not expected to materially affect the Company’s effective tax rate.
The tax effect of temporary differences representing deferred tax assets and liabilities was as follows (in thousands):
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred compensation and accrued paid leave | $ | 2,544 | $ | 1,948 | |||||||
| Accrued expense | 2,481 | 1,367 | |||||||||
| Inventory reserve | 22,822 | 23,020 | |||||||||
| Operating lease liabilities | 13,321 | 14,199 | |||||||||
| Stock-based compensation | 2,201 | 2,084 | |||||||||
| Capitalized inventory | 514 | 498 | |||||||||
| US operating and capital loss carryforward | 8,187 | 12,843 | |||||||||
| Disallowed interest expense | 6,982 | 9,450 | |||||||||
| Tax credit carryforward | 1,822 | 1,421 | |||||||||
| Foreign country operating loss carryforward | 1,417 | 1,364 | |||||||||
| Interest capitalized | — | 2,030 | |||||||||
| Transaction costs | 302 | 235 | |||||||||
| 62,593 | 70,459 | ||||||||||
Valuation allowance (a) | (5,091) | (19,368) | |||||||||
| Total gross deferred tax assets | 57,502 | 51,091 | |||||||||
| Interest rate swaps | (170) | (1,021) | |||||||||
| Depreciation | (7,285) | (4,000) | |||||||||
| Goodwill and intangible assets | (50,571) | (26,786) | |||||||||
| Operating lease right-of-use assets | (11,870) | (10,962) | |||||||||
| Other | — | (193) | |||||||||
| Total gross deferred tax liabilities | (69,896) | (42,962) | |||||||||
Net deferred tax (liabilities) assets (b) | $ | (12,394) | $ | 8,129 | |||||||
(a) A valuation allowance was provided against US capital losses in connection with a recent stock sale, certain state net operating losses, tax credits, and foreign tax loss deferred tax assets arising from carryforwards of unused tax benefits. | |||||||||||
(b) Deferred tax assets are included within other assets in the Company's consolidated balance sheets as of December 31, 2024. | |||||||||||
As of December 31, 2025, the Company had various tax losses and tax credits that may be applied against future taxable income. The majority of such tax attributes will expire in 2026 through 2046; however, some may be carried forward indefinitely.
The Organization for Economic Co-operation and Development has issued Pillar Two model rules introducing a new global minimum tax of 15% intended to be effective on January 1, 2024. While the US has not yet adopted the Pillar Two rules, many countries took steps to incorporate Pillar Two model rule concepts into their domestic laws in 2023. Considering that the Company does not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, the Company does not expect these rules will significantly increase global tax costs. The Company will continue to monitor US and global legislative action related to Pillar Two for future potential impacts.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Mar 8, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 11, 2022 | |
| 2020 | Mar 5, 2021 | |
| 2019 | Mar 9, 2020 | |
| 2018 | Mar 7, 2019 | |
| 2017 | Mar 7, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Mar 3, 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.