Xos, Inc.XOS
Xos, Inc. Income Taxes Disclosure
Income Taxes
Loss before provision for income taxes for the years ended December 31, 2024 and 2023 consisted of the following (in thousands):
| December 31, 2024 | December 31, 2023 | |||||||||||||
| U.S. | $ | (50,824) | $ | (75,822) | ||||||||||
| Foreign | $ | 702 | — | |||||||||||
Loss before provision for income taxes | $ | (50,122) | $ | (75,822) | ||||||||||
The income tax expense for the years ended December 31, 2024 and 2023 consisted of the following (in thousands):
| December 31, 2024 | December 31, 2023 | |||||||||||||
| Current: | ||||||||||||||
| Federal | $ | — | $ | — | ||||||||||
| State | 37 | 21 | ||||||||||||
| Foreign | — | — | ||||||||||||
Total current income tax expense | $ | 37 | $ | 21 | ||||||||||
| Deferred: | ||||||||||||||
| Federal | $ | — | $ | — | ||||||||||
| State | — | — | ||||||||||||
| Foreign | — | — | ||||||||||||
Total deferred income tax expense | — | — | ||||||||||||
Income tax expense | $ | 37 | $ | 21 | ||||||||||
The reconciliation between the provision for income tax expense and the amount of income tax computed by applying the U.S. federal statutory rate to income before provision for income taxes as shown in the accompanying consolidated statements of operations and other comprehensive loss for the years ended December 31, 2024 and 2023 consisted of the following:
| December 31, 2024 | December 31, 2023 | |||||||||||||
| Tax provision at U.S. federal statutory rate | 21.00 | % | 21.00 | % | ||||||||||
| Nondeductible expenses | (2.58) | (1.62) | ||||||||||||
| Fair value adjustments on earnout interests liability | 0.02 | 0.14 | ||||||||||||
Fair value adjustments on derivative liabilities | 0.12 | 0.07 | ||||||||||||
Research and development credit | 1.03 | 1.13 | ||||||||||||
| State taxes, net of federal benefit | 9.77 | 6.95 | ||||||||||||
| Change in valuation allowance adjustment | (30.40) | (27.59) | ||||||||||||
| Other | 0.97 | (0.11) | ||||||||||||
| Effective tax rate | (0.07) | % | (0.03) | % | ||||||||||
The Company's components of deferred tax assets and liabilities for the years ended December 31, 2024 and 2023 consisted of the following (in thousands):
| December 31, 2024 | December 31, 2023 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating loss carryover | $ | 66,082 | $ | 55,792 | ||||||||||
| General business and other tax credits | 9,077 | 6,765 | ||||||||||||
| Capitalized research and development | 12,215 | 8,363 | ||||||||||||
Intangible assets | 2,038 | 2,055 | ||||||||||||
Fixed assets | 1,668 | — | ||||||||||||
| Lease liabilities | 4,396 | 1,386 | ||||||||||||
| Stock based compensation | 1,011 | 607 | ||||||||||||
Business interest limitation | 511 | 56 | ||||||||||||
Inventories | 2,426 | 1,298 | ||||||||||||
| Other non-current deferred tax assets | 1,216 | 1,106 | ||||||||||||
| Subtotal | 100,640 | 77,428 | ||||||||||||
| Valuation allowance | (99,401) | (75,306) | ||||||||||||
| Total | $ | 1,239 | $ | 2,122 | ||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Fixed assets | $ | — | $ | (567) | ||||||||||
| Operating lease right-of-use asset | (922) | (1,338) | ||||||||||||
| Other non-current deferred tax liabilities | (317) | (217) | ||||||||||||
| Total | $ | (1,239) | $ | (2,122) | ||||||||||
| Net deferred tax asset | $ | — | $ | — | ||||||||||
The Company has recorded a full valuation allowance as of December 31, 2024 and 2023 since, in the judgement of management given the Company’s history of losses, the realization of these deferred tax assets was not considered more likely than not. The valuation allowance was $99.4 million and $75.3 million as of December 31, 2024 and 2023, respectively, with increases attributable to the current year’s provision. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment.
In accordance with Code Section 382 (“Section 382”) and Section 383 (“Section 383”), a corporation that undergoes an “ownership change” (generally defined as a cumulative change (by value) of more than 50% in the equity ownership of certain stockholders over a rolling three-year period) is subject to limitations on its ability to utilize its pre-change net operating losses and research and development credits to offset post-change taxable income and post-change tax liabilities, respectively. The Company’s existing net operating losses and research and development credits may be subject to limitations arising from previous ownership changes, and the ability to utilize net operating losses could be further limited by Section 382 and Section 383 of the Code. In addition, future changes in the Company’s stock ownership, some of which may be outside of the Company’s control, could result in an ownership change under Section 382 and Section 383 of the Code.
As of December 31, 2024, the Company had net operating loss carryforwards of $505.4 million. This consists of approximately $233.2 million of federal net operating losses and approximately $272.2 million of state net operating losses. The federal net operating losses have an indefinite carryforward period, and the state net operating losses may expire between 2036 and 2044.
As of December 31, 2024, the Company had research and development credit carryforwards of $9.0 million. This consists of approximately $5.6 million federal research and development credits, which will begin to expire in 2041, and approximately $3.4 million California research and development credits, which do not expire.
The Company is subject to taxation and files income tax returns with the U.S. federal government and various states. The Company currently is not under audit by the Internal Revenue Service. The Company’s 2020 California state return is currently under audit by the California Franchise Tax Board, but the Company doesn’t believe there are any uncertain tax benefits that should be reserved. The Company currently is not under audit by any other tax authorities. The Company generally is not subject to examination for tax years prior to 2019.
The Company had no unrecognized tax benefits for the years ended December 31, 2024 and 2023. Interest and penalties related to unrecognized tax benefits are recognized in operating expenses. No such interest and penalties were recognized during the years ended December 31, 2024 and 2023. The Company does not expect the amount of unrecognized tax benefits will materially change in the next twelve months.
As a result of changes made by the Tax Cuts and Jobs Act of 2017, that became effective as of January 1, 2022, the Company is now required to capitalize for tax purposes certain experimental expenditures, and amortize domestic expenses over a 5 year period and foreign expenses over a 15 year period, resulting in a deferred tax asset for the capitalized amounts.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.