Note 13. Income Taxes

Prior to the Merger, Southland LLC, and various domestic subsidiaries, elected to be taxed as an S-corporation, under the provisions of Subchapter S of the Internal Revenue Code. As such, their respective earnings were not subject to entity level income tax, but instead, the owners were liable for federal income taxes on their respective shares of the applicable income. American Bridge and Oscar Renda, two domestic subsidiaries of Southland LLC, had historically been taxed as separate C-corporations and their income subject to entity-level tax.

Following the closing of the Merger on February 14, 2023, Southland LLC, along with various domestic subsidiaries, elected to voluntarily revoke their S-corporation status effective January 1, 2023. As a result, Southland LLC,

and their domestic subsidiaries, elected to file a consolidated corporate income tax return beginning with the 2023 calendar year.  

For consolidated financial statement purposes and income tax purposes, we report our income under the percentage-of-completion input method. Deferred income taxes arise from timing differences resulting from income and expense items reported in different years for financial accounting and tax purposes. Deferred taxes are classified as noncurrent.

For the years ended December 31, 2025, December 31, 2024, and December 31, 2023, we recorded tax expense as follows:

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Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, as described in Note 2, Summary of Significant Accounting Policies, the reconciliation of taxes at the federal statutory rate to our provision for income taxes for the year ended December 31, 2025, was as follows:

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The Federal statutory tax rate is 21%. Southland effective tax rate was (22.4%) for the year ended December 31, 2025. The primary differences between the statutory rate and the effective rate were due to state income taxes, federal tax credits, valuation allowances recorded against domestic and all foreign net deferred tax assets other than Oscar Renda Canada and separate state filings for Oscar Renda, and income earned in a foreign jurisdiction with different income tax rates from the domestic rate; however, that foreign income is included within U.S. taxable income through Section 951A

Global Intangible Low-Taxed Income (“GILTI”). As a result of financial losses incurred, the Company maintains a valuation allowance against the net deferred tax assets as they are determined to not more-likely-than-not to be utilized.  

As of December 31, 2025, the Company has a valuation allowance in the amount of $143.3 million related to the net domestic and foreign deferred tax assets.

The reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows:

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The Federal statutory tax rate is 21%. Southland effective tax rate was 30.8%, and 31.3% for the years ended December 31, 2024, and December 31, 2023, respectively. The primary differences between the statutory rate and the effective rate were due to state income taxes, federal tax credits, valuation allowances recorded against specific subsidiary net deferred tax assets, and income earned in a foreign jurisdiction with different income tax rates from the domestic rate; however, that foreign income is included within U.S. taxable income through Section 951A Global Intangible Low-Taxed Income (“GILTI”).  A summary reconciliation between the federal statutory rate and our effective rate is below:

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Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures as described in Note 2, Summary of Significant Accounting Policies, cash paid for income taxes, net of refunds, during the year ended December 31, 2025 was as follows:

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Cash paid for income taxes, net of refunds, during the tax years ended December 31, 2024 and December 31, 2023, were $1.6 million and $7.6 million respectively.

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The following tables summarize the components of deferred income tax assets and deferred tax liabilities as of December 31, 2025, and December 31, 2024:

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As of December 31, 2025, and December 31, 2024, we have available federal net operating losses (“NOLs”) totaling $341.5 million and $96.8 million, respectively. We also have state net operating losses totaling $377.0 million and $153.3 million, respectively as well as foreign NOL carryforwards that total $112.6 million and $108.1 million, respectively, related to Canada and the United Kingdom. United Kingdom NOLs do not expire. Canada NOLs will begin to expire in 2038.

Unremitted earnings of our non-U.S. subsidiaries and affiliates are deemed to be permanently reinvested and, accordingly, no deferred income tax liability has been recorded. If we were to remit any foreign earnings to the U.S., the estimated tax impact would be insignificant to the overall financials due to an earnings and profits (“E&P”) deficit.

The Company is in a net deferred tax asset position for both U.S. federal and state income tax as of December 31, 2025. The Company assesses available positive and negative evidence to estimate whether sufficient taxable income

will be generated to permit use of existing deferred income tax assets.  The Company has incurred three years of cumulative losses in various jurisdictions including the U.S. Such objective evidence and recent changes in upcoming forecasts resulted in the Company establishing a valuation allowance against the  net deferred tax assets related to U.S. federal and state income tax as of September 30, 2025, with the exception of the net deferred tax assets related to separate state filings for certain subsidiaries and maintains that valuation allowance as of the year ended December 31, 2025. As of December 31, 2025, the Company has recorded a valuation allowance of approximately $118.7 million related to its US federal and state net deferred tax assets, inclusive of current year activity, as they are determined to be more-likely-than-not to not be utilized.

As a result of financial losses incurred within the Canadian operations at certain subsidiaries, the Company maintains a valuation allowance against the net deferred tax assets as they are determined to not be more-likely-than-not to be utilized. As of December 31, 2025, the Company has a valuation allowance in the amount of $8.1 million related to the net deferred tax assets on certain Canadian subsidiaries.

As of December 31, 2025 and December 31, 2024, we had uncertain tax positions as follows:

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As of December 31, 2025, and December 31, 2024, $0.1 million and $0.1 million were accrued for interest and penalty liability.  We classify interest and penalties attributable to income taxes as part of income tax expense.

As of December 31, 2025, the Company does not expect a material change in the uncertain tax position in the next twelve months.

We are subject to taxation in the United States, various states, and foreign jurisdictions. We remain subject to examination by tax authorities for tax years 2022 through 2025.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was enacted in the United States. Among other provisions, the IRA included a new 15% Corporate Alternative Minimum Tax (“CAMT”) for corporations with financial income in excess of $1 billion and a 1% excise tax on corporate share repurchases. The CAMT is effective for tax years beginning on or after January 1, 2023. As of December 31, 2025, the excise tax on corporate share repurchases is not expected to impact the Company as the Company has no plans for repurchases in the coming year.

On December 14, 2023, the FASB issued ASU 2023-09 which established new income tax disclosure requirements. Public business entities must apply the guidance to annual periods beginning after December 15, 2024. We have applied this guidance to our financial statements for the year ended December 31, 2025.