XPEL, Inc.XPEL
XPEL, Inc. Income Taxes Disclosure
INCOME TAXES
Income before income taxes on which the provision for income taxes was computed is as follows (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 51,900 | $ | 47,019 | $ | 61,974 | |||||||||||
| International | 12,161 | 9,759 | 4,057 | ||||||||||||||
Income before income taxes | $ | 64,061 | $ | 56,778 | $ | 66,031 | |||||||||||
The provision for income taxes differs from the US federal statutory rate as follows (in thousands):
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Income tax expense at U.S. federal statutory rate | $ | 13,453 | 21.0 | % | $ | 11,923 | 21.0 | % | $ | 13,867 | 21.0 | % | ||||||||
State & local income taxes, net of federal income tax effect (A) | 578 | 0.9 | % | 882 | 1.6 | % | 1,330 | 2.0 | % | |||||||||||
Foreign tax effects | 1,383 | 2.2 | % | (97) | (0.2) | % | 145 | 0.3 | % | |||||||||||
China | 720 | — | — | |||||||||||||||||
Other | 663 | — | — | |||||||||||||||||
Effect of changes in tax laws or rates enacted in current period | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | |||||||||||
Effect of cross-border tax laws | (1,127) | (1.8) | % | (1,079) | (1.9) | % | (1,611) | (2.4) | % | |||||||||||
Foreign-derived intangible income | (839) | (1,115) | (1,647) | |||||||||||||||||
Other | (288) | 36 | 36 | |||||||||||||||||
Tax credits | (1,655) | (2.6) | % | (775) | (1.4) | % | — | 0.0 | % | |||||||||||
Research & development credits | (1,655) | (775) | — | |||||||||||||||||
Changes in valuation allowances | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | |||||||||||
Nontaxable or nondeductible items | 404 | 0.6 | % | 381 | 0.7 | % | 169 | 0.3 | % | |||||||||||
Changes in unrecognized tax benefits | (39) | (0.1) | % | (40) | (0.1) | % | (34) | (0.1) | % | |||||||||||
| Other | (525) | (0.8) | % | 94 | 0.2 | % | (635) | (0.6) | % | |||||||||||
Income tax expense (effective tax rate) | $ | 12,472 | 19.5 | % | $ | 11,289 | 19.9 | % | $ | 13,231 | 20.2 | % | ||||||||
For the year ended December 31, 2025, state and local income taxes in Texas, California and Arizona made up the majority (greater than 50%) of the effect of the state and local income tax category. For the year ended December 31, 2024, state and local income taxes in Texas, California, Illinois, and Massachusetts made up the majority (greater than 50%) of the effect of the state and local income tax category. For the year ended December 31, 2023, state and local income taxes in Texas, California, Arizona, and Illinois made up the majority (greater than 50%) of the effect of the state and local income tax category.
The foreign tax rate differential reflects the impact of the differences in our various international tax rates and our US statutory rate.
The components of the income tax provision (benefit) are as follows (in thousands):
Year ended December 31 | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current income tax expense | |||||||||||||||||
| Federal | $ | 6,977 | $ | 9,969 | $ | 11,104 | |||||||||||
| Foreign | 4,117 | 2,537 | 1,372 | ||||||||||||||
| State | 1,683 | 1,528 | 1,671 | ||||||||||||||
| Total current income tax expense | $ | 12,777 | $ | 14,034 | $ | 14,147 | |||||||||||
Deferred income tax benefit | |||||||||||||||||
| Federal | $ | 1,303 | $ | (1,865) | $ | (533) | |||||||||||
| Foreign | (870) | (630) | (354) | ||||||||||||||
| State | (738) | (250) | (29) | ||||||||||||||
Total deferred income tax benefit | $ | (305) | $ | (2,745) | $ | (916) | |||||||||||
| Total | $ | 12,472 | $ | 11,289 | $ | 13,231 | |||||||||||
Income taxes paid (net of refunds received) for the years ended December 31 are as follows (in thousands):
Year ended December 31 | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Income Taxes paid (net of any refunds) | |||||||||||||||||
| US Federal | $ | 8,158 | $ | 9,620 | $ | 12,330 | |||||||||||
| US State | 1,749 | 1,876 | 1,544 | ||||||||||||||
| Foreign | 2,629 | 2,121 | 1,390 | ||||||||||||||
| Canada | 725 | — | — | ||||||||||||||
| China | 934 | — | — | ||||||||||||||
| Other | 970 | 2,121 | 1,390 | ||||||||||||||
| Total | $ | 12,536 | $ | 13,617 | $ | 15,264 | |||||||||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income taxes are as follows (in thousands):
| Years ended December 31 | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Allowance for doubtful accounts | $ | 16 | $ | 35 | |||||||
| 263(A) adjustment | 265 | 264 | |||||||||
| Accrued expenses | 197 | 177 | |||||||||
| Unrealized loss | 162 | 273 | |||||||||
| State tax credit | 1,109 | 246 | |||||||||
| NOL carryforward and other | 694 | 537 | |||||||||
| Right of use lease liability | 4,312 | 4,308 | |||||||||
| Capitalized acquisition costs | 194 | 137 | |||||||||
| Capitalized R&D | 1,356 | 3,128 | |||||||||
| Stock compensation | 464 | 379 | |||||||||
| Less valuation allowance | (107) | (92) | |||||||||
| Total deferred tax assets | $ | 8,662 | $ | 9,392 | |||||||
| Deferred tax liabilities | |||||||||||
| Fixed and intangible assets | $ | 4,668 | $ | 5,860 | |||||||
| Unrealized gain | 81 | — | |||||||||
| Right of use lease asset | 4,033 | 4,001 | |||||||||
| Total deferred tax liabilities | 8,782 | 9,861 | |||||||||
| Total net deferred tax liabilities | $ | (120) | $ | (469) | |||||||
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 Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. The Company considers projected future taxable income, the reversal of taxable temporary differences, and ongoing tax planning strategies, then records a valuation allowance, if deemed necessary, to reduce the carrying value of the net deferred taxes to an amount that is more likely than not able to be realized. Based upon the Company’s assessment of all available evidence, including the previous two years of taxable income and loss after permanent items, estimates of future profitability, and the Company’s overall prospects of future business, the Company determined that it is more likely than not that the Company will realize all of its deferred tax assets in the future, with the exception of an immaterial valuation allowance recorded against net operating losses and intangibles in foreign jurisdictions. The Company will continue to assess the potential realization of deferred tax assets on an annual basis, or an interim basis if circumstances warrant. If the Company’s actual results and updated projections vary significantly from the projections used as basis for this determination, the Company may need to change the valuation allowance against the gross deferred tax assets.
The Company has net operating losses in certain of its foreign subsidiaries of $0.3 million available to apply against future taxable income. The Company has recorded a valuation allowance based on the lack of positive available evidence of realizability of acquired net operating losses of $0.3 million. The Company has state tax credits of $1.4 million available to apply against future taxable income. These credits begin to expire in the year 2039.
Reconciliation of Unrecognized Tax Benefits from Uncertain Tax Positions (in thousands)
Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Beginning unrecognized tax benefits | $ | 74 | $ | 114 | $ | 144 | |||||||||||
Increase in related tax positions of prior years | — | — | — | ||||||||||||||
| Lapse of statute of limitations | 27 | 40 | 30 | ||||||||||||||
| Ending unrecognized tax benefits | $ | 47 | $ | 74 | $ | 114 | |||||||||||
The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely upon its technical merits at the reporting date. The unrecognized tax benefit is the difference between the tax benefit recognized and the tax benefit claimed on the Company’s income tax return. The Company has an unrecognized tax benefit as of the year ended December 31, 2025 in the amount of $0.08 million related to an uncertain tax position in one of its foreign jurisdictions. This amount includes an estimate for interest and penalties of $0.03 million and is included in income tax expense. The liability is reflected in other long-term liabilities on the Company’s balance sheet. The Company expects a reduction of the position in 2026 related to expiring statutes. The unrecognized tax benefits in the table above include $0.05 million as of December 31, 2025, that, if recognized, would have impacted income tax expense. The Company believes that all material tax positions in the current and prior years have been analyzed and properly accounted for and that the risk of additional material uncertain tax positions that have not been identified is remote.
The Company plans to indefinitely reinvest foreign earnings and does not expect to repatriate earnings for the foreseeable future. Determination of the amount of unrecognized deferred tax liabilities related to investment in these foreign subsidiaries is not practicable.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is still subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years 2018 and after. There are no ongoing or pending IRS, state or foreign examinations.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
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.