Income Taxes |
6 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | Income Taxes Provision for Income Taxes The Company is subject to U.S. federal, federal, state, and local income taxes on the Company's allocable share of taxable income of Holdings. The subsidiaries of Holdings are also subject to income taxes in the foreign jurisdictions in which they operate. We are the sole managing member of Holdings, and as a result, consolidate the financial results of Holdings. Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Holdings is generally not subject to U.S. federal and certain state and local income taxes. Instead, taxable income or loss is allocated to its members on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of Holdings, as well as any stand-alone income or loss generated by Solo Brands, Inc. Correspondingly, our forecasted annual effective tax rate (“AETR”) was 9.1% as of June 30, 2024. The effective income tax rate was (200.6)% and 4.5% for the three and six months ended June 30, 2024, compared to 18.9% and 19.4% for the corresponding periods in 2023. The decrease for the three and six months ended June 30, 2024 was primarily driven by a decrease to the forecasted AETR and the shift of income to certain corporate subsidiaries within our partnership, a reduction of income attributable to noncontrolling interests, nondeductible compensation and the impacts of other discrete items recorded in the current period. The weighted-average ownership interest in Holdings was 63.8% and 63.8% for the three and six months ended June 30, 2024, respectively, and 65.1% and 65.7% for the three and six months ended June 30, 2023. Deferred Tax Assets and Liabilities As of June 30, 2024, the total deferred tax liability related to the basis difference in the Company's investment in Holdings was $10.5 million. The total net basis difference currently recorded would reverse upon the eventual sale of its interest in Holdings as a capital gain. During the three and six months ended June 30, 2024, the Company did not recognize any deferred tax assets related to additional tax basis increases generated from expected future payments under the Tax Receivable Agreement, as defined in Note 15 - Income Taxes, to the audited consolidated financial statements included in our 2023 Form 10-K. The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of June 30, 2024, the Company concluded, based on the weight of all available positive and negative evidence, that all of the partnership deferred tax assets related to Holdings are more likely than not to be realized. During the year ended December 31, 2023, the Company evaluated and concluded that there was significant negative evidence related to the realizability of Oru's deferred tax assets, resulting in the Company recording a full valuation allowance against the deferred tax assets of Oru. As of June 30, 2024, there has been no change in the valuation allowance assessment related to Oru deferred tax assets.
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