Petco Health & Wellness Company, Inc. Income Taxes Disclosure

12. Income Taxes

Individual jurisdictions comprising greater than 5% of total income taxes paid, net of refunds, for the fiscal year 2025 include Mexico, Puerto Rico, Texas and Oregon, for $2.1 million, $1.4 million, $0.9 million and $0.7 million, respectively. Cash paid for income taxes was $34.8 million and $32.2 million in fiscal 2024 and fiscal 2023, respectively.

The effective tax rate is driven by income earned in various taxing jurisdictions, including U.S. states, and the statutory tax rates imposed by those jurisdictions, as well as permanent differences including nondeductible equity compensation, goodwill impairment charges, dividends received, and tax credits.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. With the exception to certain state net operating losses discussed below, management believes that it is more likely than not that the Company will realize the benefits of these deductible differences. This is based upon future reversals of existing taxable temporary differences over the periods in which the deferred tax assets are deductible.

As of January 31, 2026, the Company has recorded a deferred tax asset of $5.7 million reflecting the benefit of $101.4 million in state income tax net operating loss carryforwards, which will begin to expire in fiscal 2026. The Company believes that it is more likely than not that a portion of the state net operating loss carryforward will not be realized and recorded a valuation allowance of $1.9 million on the deferred tax asset related to these state net operating loss carryforwards as of January 31, 2026. If or when recognized, the tax benefits related to any reversal of the valuation allowance on deferred tax assets is accounted for as a reduction of income tax expense.

The Company has recorded a net deferred tax asset of $6.1 million reflecting the gross benefit of state income tax credits totaling $0.3 million and $7.4 million in Georgia and California, respectively. The Georgia credits will begin to expire in 2026. The California credits have an unlimited carryforward period.

The Company's interest expense carryforward of $189.3 million has an unlimited carryforward period.

Reserves are established when positions are “more likely than not” to not be sustained if challenged. Reserves are adjusted at each reporting period to reflect the impact of audit settlements, expiration of statutes of limitation, developments in the tax law and ongoing discussions with the tax authorities. Accrued interest and penalties associated with uncertain tax positions are recognized as part of the income tax provision.

The Company has approximately $19.7 million of unrecognized tax benefits as of January 31, 2026, of which $4.2 million, if recognized, would impact the effective tax rate and $15.5 million would result in an adjustment to the net deferred tax liability.

The Company has approximately $9.2 million accrued for interest and penalties as of January 31, 2026 in the consolidated balance sheets and recorded $2.5 million in interest during fiscal 2025 in the consolidated statements of operations. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company does not anticipate that unrecognized tax benefits will significantly increase or decrease over the next 12 months.

The Company is no longer subject to examination for U.S. federal income tax for periods prior to fiscal 2019. The Company is no longer subject to examination by state tax authorities for tax periods prior to fiscal 2020. The Company has no material foreign operations.