WINMARK CORP Income Taxes Disclosure
11. Income Taxes:
Income from continuing operations before income taxes included the following components:
Year Ended | |||||||||
| December 27, 2025 | | December 28, 2024 | | December 30, 2023 | ||||
Domestic | $ | 45,313,700 | $ | 43,982,300 | $ | 44,672,200 | |||
Foreign | 7,821,900 | 7,241,700 | 6,689,100 | ||||||
Income from continuing operations before taxes | $ | 53,135,600 | $ | 51,224,000 | $ | 51,361,300 | |||
Income tax expense in the accompanying consolidated financial statements differed from the expected expense as follows:
Year Ended |
| |||||||||||||||
| December 27, 2025 (1) | | December 28, 2024 (2) | | December 30, 2023 (3) |
| ||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||
$ | 11,158,500 | 21.0 | % | $ | 10,757,000 | 21.0 | % | $ | 10,785,900 | 21.0 | % | |||||
Increase (decrease) attributed to: | ||||||||||||||||
| 1,326,300 | 2.4 |
| 1,294,200 | 2.5 |
| 1,293,500 | 2.7 | ||||||||
Foreign tax effects |
|
|
| |||||||||||||
Canada: | ||||||||||||||||
Withholding tax | 759,500 | 1.4 | 706,100 | 1.4 | 665,200 | 1.3 | ||||||||||
Effect of cross-border tax laws | (369,400) | (0.7) | (360,900) | (0.7) | (369,000) | (0.7) | ||||||||||
Tax credits | ||||||||||||||||
Foreign tax credits | (759,500) | (1.4) | (706,100) | (1.4) | (665,200) | (1.3) | ||||||||||
Changes in valuation allowances | 374,500 | 0.7 | 180,000 | 0.4 | (485,700) | (0.9) | ||||||||||
Nontaxable or nondeductible items | ||||||||||||||||
Stock compensation | (1,384,500) | (2.6) | (1,109,200) | (2.2) | (958,800) | (1.9) | ||||||||||
Other | 252,500 | 0.5 | 242,900 | 0.5 | 245,600 | 0.5 | ||||||||||
Changes in unrecognized tax benefits | 186,500 | 0.4 | 258,500 | 0.5 | 240,100 | 0.5 | ||||||||||
Other reconciling items |
| (62,900) | (0.1) | 7,300 | — |
| 431,600 | 0.8 | ||||||||
Total income tax expense, | $ | 11,481,500 | 21.6 | % | $ | 11,269,800 | 22.0 | % | $ | 11,183,200 | 22.0 | % | ||||
| (1) | In 2025, state taxes in Minnesota, Pennsylvania, California, Illinois, Wisconsin, and Michigan made up the majority (greater than 50%) of the tax effect in the state and local income taxes category. |
| (2) | In 2024, state taxes in Minnesota, Pennsylvania, California, Illinois, Wisconsin, Michigan, and Florida made up the majority (greater than 50%) of the tax effect in the state and local income taxes category. |
| (3) | In 2023, state taxes in Minnesota, Pennsylvania, California, Illinois, Wisconsin, and Michigan made up the majority (greater than 50%) of the tax effect in the state and local income taxes category. |
Income taxes paid were as follows:
Year Ended | |||||||||
| December 27, 2025 | | December 28, 2024 | | December 30, 2023 | ||||
Federal | $ | 9,322,900 | $ | 8,900,000 | $ | 8,670,000 | |||
State(1) | 1,732,300 | 1,562,700 | 1,539,100 | ||||||
Foreign | |||||||||
| 759,500 |
| 706,000 |
| 665,200 | ||||
Total income taxes paid | $ | 11,814,700 | $ | 11,168,700 | $ | 10,874,300 | |||
| (1) | Income taxes paid (net of refunds) did not exceed five percent of total income taxes paid (net of refunds) in any one jurisdiction in 2025, 2024, or 2023. |
Components of the provision for income taxes are as follows:
Year Ended |
| |||||||||
| December 27, 2025 | | December 28, 2024 | | December 30, 2023 |
| ||||
Current: | ||||||||||
Federal | $ | 9,382,500 | $ | 8,840,600 | $ | 9,237,600 | ||||
State |
| 1,734,300 |
| 2,025,500 |
| 1,883,900 | ||||
Foreign |
| 560,300 |
| 563,000 |
| 573,800 | ||||
Current provision |
| 11,677,100 |
| 11,429,100 |
| 11,695,300 | ||||
Deferred: | ||||||||||
Federal |
| (122,800) |
| (108,900) |
| (504,700) | ||||
State |
| (72,800) |
| (50,400) |
| (7,400) | ||||
Deferred provision |
| (195,600) |
| (159,300) |
| (512,100) | ||||
Total provision for income taxes | $ | 11,481,500 | $ | 11,269,800 | $ | 11,183,200 | ||||
The tax effects of temporary differences that give rise to the net deferred income tax assets and liabilities are presented below:
| December 27, 2025 | | December 28, 2024 |
| |||
Deferred tax assets: | |||||||
Accounts receivable and lease reserves | $ | 100 | $ | 100 | |||
Non-qualified stock option expense |
| 2,222,100 |
| 1,942,000 | |||
Deferred revenue |
| 1,800,000 |
| 1,728,100 | |||
Trademarks |
| 41,400 |
| 40,200 | |||
Lease revenue and initial direct costs | — | 21,300 | |||||
Foreign tax credits | 761,600 | 597,300 | |||||
Operating lease liabilities |
| 735,500 |
| 884,500 | |||
Other | 468,900 | 348,300 | |||||
Valuation allowance |
| (923,600) |
| (530,000) | |||
Total deferred tax assets |
| 5,106,000 |
| 5,031,800 | |||
Deferred tax liabilities: | |||||||
Depreciation and amortization |
| (699,500) |
| (820,000) | |||
Total deferred tax liabilities |
| (699,500) |
| (820,000) | |||
Total net deferred tax assets | $ | 4,406,500 | $ | 4,211,800 | |||
The Company has assessed its taxable earnings history and prospective future taxable income. Based upon this assessment, the Company has determined that it is more likely than not that its deferred tax assets will be realized in future periods and no valuation allowance is necessary, except for the deferred tax assets related to the foreign tax credits and non-qualified stock option expense. The foreign tax credits will expire after 10 years. As a result, valuation allowances of $923,600 and $530,000 as of December 27, 2025 and December 28, 2024, respectively, have been recorded.
The amount of unrecognized tax benefits, including interest and penalties, as of December 27, 2025 and December 28, 2024, was $1,893,200 and $1,663,400, respectively, primarily for potential state taxes. All of these unrecognized tax benefits, if recognized, would impact the effective tax rate.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense for all periods presented. The Company had accrued approximately $448,700 and $369,100 for the payment of interest and penalties at December 27, 2025 and December 28, 2024, respectively.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
| Total |
| ||
Balance at December 30, 2023 | $ | 1,083,100 | ||
Increases related to current year tax positions |
| 283,100 | ||
Expiration of the statute of limitations for the assessment of taxes |
| (71,900) | ||
Balance at December 28, 2024 | 1,294,300 | |||
Increases related to current year tax positions |
| 282,300 | ||
Expiration of the statute of limitations for the assessment of taxes |
| (132,300) | ||
Balance at December 27, 2025 | $ | 1,444,300 | ||
The Company and its subsidiaries file income tax returns in the U.S. federal, numerous state and certain foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2021. The Internal Revenue Service concluded its examination of our U.S. federal tax return for the 2022 tax year in 2025. We expect various statutes of limitation to expire during the next 12 months. Due to the uncertain response of taxing authorities, a range of outcomes cannot be reasonably estimated at this time.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 8, 2022 | |
| 2020 | Mar 9, 2021 | |
| 2019 | Mar 10, 2020 | |
| 2018 | Mar 8, 2019 | |
| 2017 | Mar 9, 2018 | |
| 2016 | Mar 10, 2017 | |
| 2015 | Mar 8, 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.