v3.26.1
Note 10 - Income Taxes
 6 Months Ended
Jun. 30, 2026
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

10. Income Taxes

 

A reconciliation of current and deferred income tax (benefit) expense for the three and six months ended June 30, 2026 and 2025 is as follows:

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30, 2026

  

June 30, 2025

  

June 30, 2026

  

June 30, 2025

 

Current income tax:

                

Federal

 $—  $—  $—  $— 

State

  (2,250)  8,262   18,043   20,873 

Total current income tax

  (2,250)  8,262   18,043   20,873 

Deferred income tax:

                

Federal

  —   —   (3,597,209)  — 

State

  —   —   (1,148,123)  — 

Total deferred income tax

  —   —   (4,745,332)  — 

Total income tax (benefit) expense

 $(2,250) $8,262  $(4,727,289) $20,873 

 

Current income tax expense in both periods consists of state income and franchise taxes; the Company had a tax net loss in each period and therefore recorded no current federal income tax. The Company has recorded a current state income tax payable of approximately $9.5 thousand and $3.0 thousand as of  June 30, 2026 and December 31, 2025, respectively. 

 

Effective Tax Rate

 

The Company's effective tax rate was 8729.8% for the six months ended June 30, 2026, compared to (4.0)% for the six months ended June 30, 2025. The effective tax rate for the six months ended June 30, 2026 differed from the U.S. federal statutory rate of 21% primarily due to a discrete income tax benefit recognized in connection with the Navitas Acquisition, partially offset by the continuing full valuation allowance on the Company's net deferred tax assets and the effect of state and local income taxes. Excluding the discrete item described below, the Company's effective tax rate for the six months ended June 30, 2026 would have been substantially zero, reflecting the continuing full valuation allowance on the Company's net deferred tax assets. The effective tax rate for the six months ended June 30, 2025, was driven by current state and local income and franchise taxes.

 

Discrete Tax Benefit Related to the Navitas Acquisition

 

In connection with the Navitas Acquisition on March 12, 2026 (see Note 2, Business Combinations), the Company recorded $4.7 million of acquired net deferred tax liabilities, consisting principally of deferred tax liabilities on identifiable intangible assets recognized in the preliminary purchase price allocation. The acquired deferred tax liabilities provide a source of future taxable income that is available to support realization of the Company's pre-existing deferred tax assets. As a result, in accordance with ASC 740-10-30-18, the Company released a corresponding portion of its valuation allowance during the six months ended June 30, 2026, resulting in a discrete income tax benefit of $4.7 million. This benefit was recorded in the period in which the underlying acquisition occurred and is not reflected in the Company's estimated annual effective tax rate.

 

Valuation Allowance

 

The Company continues to maintain a full valuation allowance against its net deferred tax assets. Management has determined that, after considering all available positive and negative evidence, including the Company's history of cumulative losses, projected future taxable income, and the reversal patterns of existing taxable and deductible temporary differences, it is more likely than not that the Company's net deferred tax assets will not be realized. The Company will continue to evaluate the realizability of its deferred tax assets in future periods and will adjust the valuation allowance when sufficient positive evidence indicates that all or a portion of the deferred tax assets are more likely than not to be realized.

 

Unrecognized Tax Benefits

 

There were no material changes to the Company's gross unrecognized tax benefits during the three and six months ended June 30, 2026.

 

For additional information on the Company's accounting policies for income taxes, components of deferred tax assets and liabilities, net operating loss and tax credit carryforwards, and open tax years, see Note 9 to the consolidated financial statements in the 2025 Form 10-K.