Western Midstream Partners, LPWES

Western Midstream Partners, LP Income Taxes Disclosure

10-KFiled Feb 18, 20263 min read
8. INCOME TAXES

Accounting Standards Update 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” was adopted on December 31, 2025, using a retrospective approach with no impact to the consolidated statements or additional disclosures.
The Partnership is not a taxable entity for U.S. federal income tax purposes; therefore, the federal statutory rate is zero percent. However, income apportionable to Texas is subject to Texas margin tax.
For the year ended December 31, 2025, the variance from the federal statutory rate was primarily due to the Texas margin tax liability and federal income tax on activities operated through corporate entities. For the year ended December 31, 2024, the variance from the federal statutory rate was primarily impacted by a state margin tax rate increase associated with no longer being included in Occidental’s affiliated group tax return beginning in September 2024 due to Occidental’s sale of 19.5 million of the Partnership’s common units in August 2024 and the resulting decrease in ownership, inclusive of its ownership in WES Operating. For the year ended December 31, 2023, the variance from the federal statutory rate was primarily due to the Texas margin tax liability.
The components of income tax expense (benefit) are as follows:
Year Ended December 31,
thousands202520242023
Current state income tax expense (benefit)$11,142$3,900$3,341
Total current income tax expense (benefit)$11,142$3,900$3,341
 
Deferred federal income tax expense (benefit)$2,492$—$—
Deferred state income tax expense (benefit)1,45214,2111,044
Total deferred income tax expense (benefit)$3,944$14,211$1,044
 
Total income tax expense (benefit)$15,086$18,111$4,385

Total income taxes differed from the amounts computed by applying the statutory income tax rate to income (loss) before income taxes. The sources of these differences are as follows:
Year Ended December 31,
thousands except percentages202520242023
Income (loss) before income taxes$1,227,541$1,629,363$1,052,392
Statutory tax rate— %— %— %
Tax computed at statutory rate$—$—$—
Adjustments resulting from:
Texas margin tax expense (benefit) (1)
$12,352$18,111$4,385
Federal income tax on corporate entities2,492——
Other state taxes242——
Income tax expense (benefit)$15,086$18,111$4,385
Effective tax rate1 %1 %— %
_________________________________________________________________________________________
(1)Includes tax expense of $13.1 million for the year ended December 31, 2024, related to an increased Texas margin tax rate resulting from no longer being included in Occidental’s affiliated group tax return beginning in September 2024.
8. INCOME TAXES

The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) are as follows:
December 31,
thousands20252024
Deferred tax assets:
Net operating loss carryforward$84,609$—
Interest expense carryforward and other4,913—
Other3,4652,717
Total deferred tax assets$92,987$2,717
Valuation allowance(608)—
Net deferred tax assets$92,379$2,717
 
Deferred tax liabilities:
Partnership interest held by corporate subsidiaries$(163,545)$—
Depreciable property(37,068)(30,984)
Other intangible assets(3,043)(1,412)
Net long-term deferred income tax liabilities(203,656)(32,396)
Total net deferred income tax liabilities$(111,277)$(29,679)

As of December 31, 2025, the Partnership had unused net operating loss carryforwards for federal income tax purposes of $357.3 million, which can be carried forward indefinitely and may be used to offset future taxable income. The federal net operating loss carryforward limit under Internal Revenue Code (“IRC”) Section 382 is $322.1 million. Although the Partnership expects to fully utilize the federal net operating loss allowed under IRC Section 382, the amount utilized in a particular year may be limited.
As of December 31, 2025, the Partnership had unused net operating loss carryforwards for state income tax purposes of $192.3 million, which can be carried forward indefinitely, and $13.0 million, which expire from 2038 through 2040. The Partnership believes that it is more likely than not that the benefit from certain state net operating loss carryforwards will not be realized and have provided a valuation allowance of $0.6 million on the deferred tax assets related to these state net operating loss carryforwards.
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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.

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