WaterBridge Infrastructure LLC Income Taxes Disclosure
7. Income Taxes and Tax Receivable Agreement
As a result of the IPO, the Company became the sole managing member of OpCo, which is treated as a partnership for U.S. federal and state and local income tax purposes. As a partnership, OpCo is not subject to U.S. federal and certain state and local income taxes. The taxable income or loss generated by OpCo is passed through to, and included in, the taxable income or loss of its members, including the Company. Beginning with the IPO, the Company is subject to U.S. federal income taxes and state and local income taxes with respect to its allocable share of taxable income or loss of OpCo, as well as any stand-alone income or loss generated by the Company. Prior to the IPO, OpCo was subject to entity level state income tax in the state of Texas.
Income Tax Provision
The components of income tax expense (benefit) are as follows:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current tax expense |
|
|
|
|
|
|
|
|
|
|||
State |
|
$ |
181 |
|
|
$ |
320 |
|
|
$ |
111 |
|
Total current tax expense |
|
|
181 |
|
|
|
320 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|||
Deferred tax (benefit) |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
(1,206 |
) |
|
|
- |
|
|
|
- |
|
State |
|
|
(40 |
) |
|
|
- |
|
|
|
- |
|
Total deferred tax (benefit) |
|
|
(1,246 |
) |
|
|
- |
|
|
|
- |
|
Total income tax (benefit) expense |
|
$ |
(1,065 |
) |
|
$ |
320 |
|
|
$ |
111 |
|
Effective Tax Rate
The Company's overall effective tax rate differs from the U.S statutory rate primarily due to the fact that prior to the IPO, OpCo was structured as a partnership for U.S. federal income tax and subsequent to the IPO, the OpCo income (loss) attributable to the noncontrolling interests in OpCo is not subject to U.S. federal income tax at the Company or OpCo.
The reconciliation of income taxes at the federal statutory level to provision for income taxes is as follows:
|
|
Year Ended December 31, |
|
|||||||||||||||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||||||||||||||
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
||||||
(benefit) expense at statutory rate |
|
$ |
(222 |
) |
|
|
21.0 |
% |
|
$ |
696 |
|
|
|
21.0 |
% |
|
$ |
3,103 |
|
|
|
21.0 |
% |
1) |
|
|
142 |
|
|
|
(13.4 |
%) |
|
|
320 |
|
|
|
9.7 |
% |
|
|
111 |
|
|
|
0.8 |
% |
Pre-IPO non-taxable / deductible income |
|
|
(3,479 |
) |
|
|
329.4 |
% |
|
|
(696 |
) |
|
|
(21.0 |
%) |
|
|
(3,103 |
) |
|
|
(21.0 |
%) |
Noncontrolling interests |
|
|
2,494 |
|
|
|
(236.2 |
%) |
|
|
- |
|
|
|
0.0 |
% |
|
|
- |
|
|
|
0.0 |
% |
Total income tax (benefit) expense at effective rate |
|
$ |
(1,065 |
) |
|
|
100.8 |
% |
|
$ |
320 |
|
|
|
9.7 |
% |
|
$ |
111 |
|
|
|
0.8 |
% |
Income Taxes Paid by Jurisdiction
The Company paid $0.3 million and $0.1 million in state income taxes during the years ended December 31, 2025 and 2024, respectively. No income taxes were paid during the year ended December 31, 2023.
Deferred Tax Assets and Liabilities
The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts and income tax basis of assets and liabilities and the expected benefits of utilizing net operating losses and tax credit carryforwards, using enacted tax rates in effect for the taxing jurisdictions in which the Company operates for the year in which those temporary differences are expected to be recovered or settled.
The tax effects of temporary differences that give rise to our deferred tax assets and liabilities are as follows:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Net operating losses |
|
$ |
137,386 |
|
|
$ |
- |
|
Tax receivable agreement imputed interest |
|
|
12,593 |
|
|
|
- |
|
Total deferred tax assets: |
|
|
149,979 |
|
|
|
- |
|
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Investment in partnership |
|
|
(18,174 |
) |
|
|
- |
|
Total deferred tax liabilities |
|
|
(18,174 |
) |
|
|
- |
|
Net deferred tax assets |
|
$ |
131,805 |
|
|
$ |
- |
|
The Company evaluates all deferred tax assets as to their future realization using positive and negative evidence. As of December 31, 2025, the Company believes it is more likely than not that all deferred tax assets will be realized and as a result, the Company has not recorded a valuation allowance against its deferred tax assets.
The Company evaluates uncertain tax positions for recognition and measurement in the financial statements. To recognize a tax position, the Company determines whether it is more likely than not that the tax position will be sustained upon examination. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the financial statements. As of December 31, 2025, the Company has no significant uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdiction, New Mexico, and Oklahoma on a separate basis. There are currently no federal or state income tax examinations underway for these jurisdictions. The Company's federal and state returns remain open to examination for tax years .
In connection with the WaterBridge Combination and the merger of WB 892 LLC (“WB 892”), a Delaware limited liability company, with and into the Company, the Company recorded a net deferred tax asset of $133.2 million. The deferred tax asset is attributable to net operating losses (“NOLs”) historically generated at WB 892, future imputed interest deductions (“TRA Imputed Interest”) associated with the Tax Receivable Agreement (the “TRA”) entered into by the Company with OpCo and the Legacy Owners (each such person and its permitted transferees, a “TRA Holder” and collectively, the “TRA Holders”), and the difference between the Company’s outside basis in its investment in OpCo compared to its share of the net financial statement carrying value of the assets of OpCo. The NOL carryforwards have an indefinite life and are expected to be subject to annual limitations under the provisions of Section 382 of the Internal Revenue Code. The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. Based on these factors, we determined that the deferred tax asset established in connection with the WaterBridge Combination is more likely than not to be recognized; therefore, no valuation allowance was recorded. The initial deferred tax asset of $108.6 million for NOL carryforwards, $13.9 million for the TRA Imputed Interest, and $10.7 million for the investment in OpCo are recorded against Class A shares in the consolidated statements of shareholders’ and member’s equity.
On July 4, 2025, H.R. 1, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”), was enacted in the U.S., which includes a broad range of tax reform provisions, including extending and modifying certain key provisions (both domestic and international) in the Tax Cuts and Jobs Act. The legislation has multiple effective dates, with certain provisions effective in 2025 and others to be implemented through 2027. We have evaluated the full effects of the legislation and determined that the legislation has a material impact on our financials statements, particularly as it relates to full expensing of certain qualifying tangible personal property, as well as changes to the interest limitation computations. The impacts of the legislation are considered in our provision for income taxes for the year ended December 31, 2025.
Tax Receivable Agreement
On September 18, 2025, in connection with the WaterBridge Combination and the IPO, we entered into the TRA with OpCo and the TRA Holders. The TRA generally provides for the payment by us to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax that we (a) actually realize, or in some cases are deemed to realize, with respect to taxable periods ending after the IPO or (b) the TRA terminates early (at our election or as a result of our breach) with respect to any taxable periods ending on or after such early termination event, in each case, as a result of (i) the tax basis increases resulting from the exchange of OpCo Units and the corresponding surrender of an equivalent number of shares of Class B shares by the TRA Holders for a number of Class A shares on a one-for-one basis or, at our option, the receipt of an equivalent amount of cash pursuant to the OpCo LLC Agreement; (ii) the tax deductions allocable to the Company as a result of the existing tax basis of assets of OpCo prior to the IPO; (iii) the tax deductions allocable to the Company as a result of existing tax basis of assets of OpCo purchased after the IPO and prior to an exchange of OpCo Units; (iv) NOLs and interest expense carryforwards of WB 892; and (v) deductions arising from imputed interest deemed to be paid by us as a result of, and additional tax basis arising from, any payments we make under the TRA. We will retain the benefit of the remaining 15% of these cash savings, if any.
As of December 31, 2025, the Company recorded a TRA liability of $201.4 million primarily attributable to existing tax basis of OpCo prior to the IPO as well as NOL carryforwards of WB 892. The establishment of the TRA liability as a result of the WaterBridge Combination and IPO is recorded against Class A shares in the consolidated statements of shareholders’ and member’s equity. Future adjustments to the obligation under the TRA, which might result from, among other things, changes in expectations about the extent to which tax benefits subject to the TRA will be realized and tax rate changes, would be recognized in earnings. This arrangement does not represent a tax based on income, but rather a contractual relationship between an entity and its shareholders and is accounted for under ASC 450—Contingencies. The effects of these adjustments are not an element of income tax expense as they do not relate to costs incurred in connection with compliance with income tax law.
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.