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Income Taxes And Tax Receivable Agreement
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes And Tax Receivable Agreement

17. INCOME TAXES AND TAX RECEIVABLE AGREEMENT

Income Taxes

The Company is the managing member of Zevia LLC and as a result, consolidates the financial results of Zevia LLC in the consolidated financial statements of Zevia PBC. Zevia LLC is a pass-through entity for U.S. federal and most applicable state and local income tax purposes following the Reorganization Transactions effected in connection with the IPO. As an entity classified as a partnership for tax purposes, Zevia LLC is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Zevia LLC is passed through to its members, including the Company. The Company is taxed as a C corporation and pays corporate federal, state and local taxes with respect to income allocated from Zevia LLC based on Zevia PBC’s economic interest in Zevia LLC, which was 84.2% and 75.8%, as of December 31, 2024 and 2023, respectively.

The provision for income taxes consists of the following:

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

Current

 

 

 

 

 

 

Federal

 

$

—

 

 

$

—

 

State

 

 

66

 

 

 

52

 

Total

 

 

66

 

 

 

52

 

Deferred

 

 

 

 

 

 

Federal

 

 

—

 

 

 

—

 

State

 

 

—

 

 

 

—

 

Total

 

 

—

 

 

 

—

 

Provision for income taxes

 

$

66

 

 

$

52

 

A reconciliation between the Company’s effective tax rate and the applicable U.S. federal statutory income tax rate is summarized as follows:

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

Tax computed at federal statutory rate

 

 

21.0

%

 

 

21.0

%

State tax, net of federal tax benefit

 

 

0.8

%

 

 

1.0

%

Permanent items and other

 

 

(6.3

)%

 

 

(0.6

)%

Non-controlling interests

 

 

(6.7

)%

 

 

(8.7

)%

Equity-based compensation

 

 

(4.1

)%

 

 

(3.5

)%

Valuation allowance

 

 

(5.0

)%

 

 

(9.5

)%

Effective Tax Rate

 

 

(0.3

)%

 

 

(0.3

)%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. The components that comprise the Company’s net DTAs s consist of the following:

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

Deferred tax assets

 

 

 

 

 

 

Investment in Zevia LLC

 

$

50,418

 

 

$

53,081

 

Net operating loss carryforwards

 

 

26,723

 

 

 

20,488

 

Equity-based compensation

 

 

1,251

 

 

 

1,795

 

Other temporary differences

 

 

526

 

 

 

177

 

Total deferred tax assets

 

 

78,918

 

 

 

75,541

 

Valuation allowance for deferred tax assets

 

 

(78,918

)

 

 

(75,541

)

Net deferred tax assets

 

$

—

 

 

$

—

 

The Company records a valuation allowance to reduce DTAs to the amount the Company believes is more likely than not to be realized. The determination of recording or releasing tax valuation allowances is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate sufficient future taxable income against which benefits of the DTAs may or may not be realized. This assessment requires management to exercise significant judgment and make estimates with respect to the Company’s ability to generate revenue, gross profits, operating income and taxable income in future periods. The Company has recorded a full valuation allowance of $78.9 and $75.5 million as of December 31, 2024 and 2023, respectively, as it cannot conclude that it is more likely than not that the DTAs will be realized primarily due to the generation of pre-tax book losses from its inception.

The following table summarizes the activity related to the Company’s valuation allowance:

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

Balance, beginning of the year

 

$

75,541

 

 

$

72,662

 

Increases related to current year positions

 

 

3,377

 

 

 

2,879

 

Balance, end of the year

 

$

78,918

 

 

$

75,541

 

 

As of December 31, 2024, the Company has federal and state net operating loss carryforwards of $110.4 million and $68.1 million, respectively. The federal net operating loss can be carried forward indefinitely but are limited to 80% utilization against future taxable income each year in accordance with the Tax Cuts and Jobs Act of 2017. The state net operating loss carryforwards will begin to expire in 2031 unless previously utilized by the Company.

The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes that it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcome of examinations by tax authorities in determining the adequacy of its provision for income taxes.

As of December 31, 2024, the Company has no uncertain tax positions and does not expect a significant change in unrecognized tax benefits during the next 12 months.

The Company is subject to taxation in the U.S. and various states. The Company is not currently under examination by any taxing authorities. Due to the carryover of tax attributes, the statute of limitations is currently open for tax years since inception for Zevia PBC.

On June 27, 2024, California enacted Senate Bill 167. SB 167 suspended the net operating loss deduction for tax years beginning on or after January 1, 2024, and before January 1, 2027. The suspension applies to taxpayers with greater than $1 million in net income for the tax year. There was no material impact from the provisions of SB 167 during the year ended December 31, 2024.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”), which includes a 15% book-income alternative minimum tax on corporations with average applicable financial statement income over $1 billion for any three year period ending with 2022 or later and a 1% excise tax on the fair market value of stock that is repurchased by publicly-traded U.S. corporations or their specified affiliates. The alternative minimum tax and the excise tax are effective in taxable years beginning after December 31, 2022. The IRA also includes provisions intended to mitigate climate change by, among others, providing tax credit incentives for reductions in greenhouse gas emissions. This legislation did not have a material impact on the consolidated financial statements.

Tax Receivable Agreement

The Company expects to obtain an increase in its share of tax basis in the net assets of Zevia, LLC when Class B units are exchanged by the holders of Class B units for shares of Class A common stock of the Company and upon certain qualifying transactions. Each change in outstanding shares of Class A common stock of the Company results in a corresponding change in the Company’s ownership of Class A units of Zevia, LLC. The Company intends to treat any exchanges of Class B units as direct purchases of LLC interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that Zevia PBC would otherwise pay in the future to various taxing authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

In connection with the IPO, the Company entered into a Tax Receivable Agreement (“TRA”) with continuing members of Zevia LLC and the shareholders of blocker companies (“Blocker Companies”) of certain pre-IPO institutional investors (“the Direct Zevia Stockholders”). In the event that such parties exchange any or all of their Class B units for Class A common stock, the TRA requires the Company to make payments to such holders for 85% of the tax benefits realized, or in some cases deemed to be realized, by the Company by such exchange as a result of (i) certain favorable tax attributes acquired from the Blocker Companies in certain mergers (including net operating losses and the Blocker Companies’ allocable share of existing tax basis), (ii) increases in tax basis resulting from Zevia PBC’s acquisition of continuing member’s Zevia LLC units in connection with the IPO and in future exchanges and, (iii) tax basis increases attributable to payments made under the TRA (including tax benefits related to imputed interest). The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits. The Company expects to benefit from the remaining 15% of any tax benefits that it may actually realize. The TRA payments are not conditioned upon any continued ownership interest in Zevia LLC or the Company. To the extent that the Company is unable to timely make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid.

The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable. The Company calculates the liability under the TRA using a complex TRA model, which includes an assumption related to the fair market value of assets. Payments are generally due under the TRA within a specified period of time following the filing of the Company’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of the Secured Overnight Financing Rate plus 300 basis points from the due date (without extensions) of such tax return.

The TRA provides that if (i) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur; (ii) there is a material uncured breach of any obligations under the TRA; or (iii) the Company elects an early termination of the TRA, then the TRA will terminate and the Company’s obligations, or the Company’s successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that the Company would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and that any Class B units that have not been exchanged are deemed exchanged for the fair market value of the Company’s Class A common stock at the time of termination.

As of December 31, 2024, the Company has concluded, based on applicable accounting standards, that it was more likely than not that its DTAs subject to the TRA would not be realized; therefore, the Company has not recorded a liability related to the tax savings it may realize from utilization of such DTAs. The TRA liability that would be recognized if the associated tax benefits were determined to be fully realizable totaled $56.5 million and $56.2 million at December 31, 2024 and 2023, respectively. The increase in the TRA liability is primarily related to Class B to Class A exchanges during the year ended December 31, 2024. If utilization of the DTAs subject to the TRA becomes more likely than not in the future, the Company will record a liability related to the TRA which will be recognized as expense within its consolidated statements of operations.