Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.25.4
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision for income taxes - benefit (expense) consists of the following:
Year Ended December 31,
2025 2024 2023
(In millions)
Current tax expense:
Federal $ (73.8) $ (52.7) $ (62.6)
State and local
 (6.1) (16.5) (19.7)
Total current tax expense
 (79.9) (69.2) (82.3)
Deferred tax benefit:
Federal 24.8  23.1  17.1 
State and local 1.0  6.0  1.5 
Total deferred tax benefit 25.8  29.1  18.6 
Total provision for income taxes - expense $ (54.1) $ (40.1) $ (63.7)
The reconciliation of the U.S. statutory federal income tax rate with our federal and state overall effective income tax rate in accordance with ASU 2023-09 is as follows for the year ending December 31, 2025:
Year Ended December 31, 2025
In USD (in millions)
Percent of Pre-tax Income
U.S. statutory federal income tax rate $ (36.3) 21.0  %
State and local income tax, net of federal benefit (1)
 (4.1) 2.4  %
Nontaxable or nondeductible items
Nondeductible compensation
 (7.6) 4.9  %
Share-based compensation
 3.5  (2.0) %
Other
 (2.1) 0.6  %
Changes in unrecognized tax benefits
 (0.6) 0.4  %
Other (6.9) 4.0  %
Income tax expense, effective tax rate
 $ (54.1) 31.3  %
(1) The states that constitute the majority of the tax effect in this category include California, Texas, and Florida.
For the years ending December 31, 2024 and 2023, the reconciliation of the U.S. statutory federal income tax rate with our federal and state overall effective income tax rate is as follows:
Year Ended December 31,
2024 2023
U.S. statutory federal income tax rate 21.0  % 21.0  %
Effective state income tax rate 5.2  % 6.1  %
Valuation allowance adjustments (0.1) % (0.3) %
Uncertain tax positions 0.6  % 2.2  %
Effect of goodwill impairment and indefinite lived intangible assets (12.1) % 0.0  %
Non-deductible compensation 1.9  % 1.4  %
Other (0.8) % (4.1) %
Effective income tax rate 15.7  % 26.3  %
    
Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Significant components of our deferred tax assets and liabilities were as follows:
December 31, 2025 December 31, 2024
(In millions)
Deferred tax assets:
Accruals and reserves $ 39.1  $ 40.6 
State net operating loss carryforwards 6.6  6.6 
Basis difference in liabilities related to right-of-use assets 165.4  147.7 
Other 5.1  4.4 
Total deferred tax assets 216.2  199.3 
Deferred tax liabilities:
Basis difference in property and equipment (9.6) (3.8)
Basis difference in goodwill (49.3) (79.7)
Basis difference in right-of-use assets (147.9) (133.2)
Other (2.0) (2.6)
Total deferred tax liabilities (208.8) (219.3)
Valuation allowance (6.5) (6.2)
Net deferred tax asset (liability) $ 0.9  $ (26.2)
Net long-term deferred tax balances were approximately $0.9 million deferred tax assets and $26.2 million deferred tax liabilities at December 31, 2025 and 2024, respectively, and are recorded in other assets and other long-term liabilities, respectively, on the accompanying consolidated balance sheets.
We have approximately $156.5 million in gross state net operating loss carryforwards that will expire between 2026 and 2045. Management reviews these carryforward positions, the time remaining until expiration and other opportunities to realize these carryforwards in making an assessment as to whether it is more likely than not that these carryforwards will be realized. The results of future operations, regulatory framework of the taxing authorities and other related matters cannot be predicted with certainty and, therefore, differences from the assumptions used in the development of management’s judgment could occur. As of December 31, 2025, we had recorded a valuation allowance amount of approximately $6.5 million related to certain state net operating loss carryforward deferred tax assets as we determined that we would not be able to generate sufficient state taxable income in the related entities to realize the accumulated net operating loss carryforward balances.
The following table is a reconciliation of our unrecognized tax benefits for the years ended December 31, 2025, 2024, and 2023:
Year Ended December 31,
2025 2024 2023
(In millions)
Unrecognized tax benefits, beginning of year
 $ 4.5  $ 9.3  $ 4.4 
Increases (decreases) for tax positions of prior years
 —  (5.6) 5.5 
Additions based on tax positions related to the current year
 0.5  1.2  (0.5)
Lapse of statute of limitations (0.2) (0.4) (0.1)
Unrecognized tax benefits, end of year
 $ 4.8  $ 4.5  $ 9.3 
Unrecognized tax benefits and associated accrued interest and penalties are included in income tax provision. The accrued liability recognized related to interest and penalties was $1.3 million and $1.1 million as of December 31, 2025 and 2024, respectively.
Sonic and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Sonic’s 2022 through 2025 U.S. federal income tax returns remain open to examination by the U.S. Internal Revenue Service. Sonic’s and its subsidiaries’ state income tax returns remain open to examination by state taxing authorities for years ranging from 2019 to 2025.