10. TAXES

We use the asset and liability method of accounting for income taxes based on ASC 740, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized. We recognize Global Intangible Low-Taxed Income ("GILTI") as a period expense in the period the tax is incurred. We do not record deferred tax assets or liabilities for basis differences that may result in future GILTI inclusions. 

A breakdown of our income tax expense (benefit) for the years ended December 31 is as follows:

The following table reconciles the taxes calculated at the U.S. federal statutory tax rate to the total income tax expense for the year ended December 31, 2025:

^(a)State Taxes in Georgia and California made up the majority (greater than 50 percent) of the tax effect in this category.

The following table presents the required disclosures prior to our adoption of ASU 2023-09 and reconciles the taxes calculated at the U.S. federal statutory tax rate to the total income tax expense for the year ended  December 31, 2024:

Deferred income taxes recorded in the Consolidated Balance Sheets at December 31, 2025 and 2024 consisted of the following:

The valuation allowance as of December 31, 2025 is related to certain foreign income tax net operating loss carry forwards.

We have provided Puerto Rico tollgate taxes on approximately $3.7 million of accumulated undistributed earnings of Lifestyle prior to the fiscal year ended June 30, 1994 that would be payable if such earnings were repatriated to the U.S. In 2001, we received abatement for Puerto Rico tollgate taxes on all earnings subsequent to June 30, 1994; thus no other provision for tollgate tax has been made on earnings after that date. If we repatriate the earnings from Lifestyle, $0.2 million of tollgate tax would be due as of December 31, 2025. 

We are subject to income taxes in the U.S. and various foreign jurisdictions. The Company benefits from tax incentive programs in certain foreign jurisdictions, principally Puerto Rico and the Dominican Republic.

Our Puerto Rican operations are subject to a Grant of Tax Exemption under Puerto Rico Act 60-2019. This grant, which constitutes a contractual agreement with the Government of Puerto Rico, provides for a 15-year exemption period effective January 1, 2022. Under the terms of the grant, qualifying income is subject to a fixed income tax rate of 4.0%. For the year ended December 31, 2025, we generated approximately $1.6 million of income subject to the 4.0% preferential tax rate.

Our operations in the Dominican Republic operate under the Free Trade Zone regime pursuant to Law No. 8-90. Under this regime, we benefit from a tax incentive program that includes a 0% income tax rate on qualifying income. The operating permit, which allows us to legally operate under the country's Free Zone regime, was issued by the National Free Zone Council and is valid until 2032 upon which time it will be renewed. For the year ended December 31, 2025, we generated approximately $2.1 million of income subject to the 0% income tax rate.

Income tax payments by jurisdiction, net of refunds, were composed of the following for the year ended December 31, 2025:

For the year ended December 31, 2024, we received total tax refunds of approximately $1.9 million, net of payments.

We are subject to tax examinations in various taxing jurisdictions. The earliest exam years open for examination are as follows:

Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of December 31, 2025, no such expenses were recognized during the year. We do not believe there will be any material changes in our uncertain tax positions over the next 12 months.

Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Under this guidance, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard. We did not have any unrecognized tax benefits and there was no effect on our financial condition or results of operations.