Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Current federal income tax expense or benefit represents the amounts expected to be reported on our income tax return, and deferred income tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted income tax rates that will be in effect when these differences reverse.  The current state income tax provision is primarily related to taxable income in certain states that have suspended or limited the ability to use net operating loss carryforwards or where net operating losses have been fully utilized.  Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.
We have historically filed a consolidated federal income tax return for all of our wholly owned subsidiaries, including Sirius XM and Pandora. On February 1, 2021, we entered into a tax sharing agreement with Liberty Media governing the allocation of consolidated U.S. income tax liabilities and setting forth agreements with respect to other tax matters. The tax sharing agreement contained provisions that we believed were customary for tax sharing agreements between members of a consolidated group. On November 3, 2021, Liberty Media informed us that it beneficially owned over 80% of the outstanding shares of our common stock, as a result of this, we were included in the consolidated tax return of Liberty Media beginning November 4, 2021. In connection with the closing of the Transactions, on September 9, 2024, this existing Tax Agreement with Liberty Media was terminated, when Liberty Media completed the Split-Off and ceased to own any shares of our common stock. As a result, we ceased to be a member of Liberty Media’s consolidate tax group beginning on September 9, 2024 and ceased to file a consolidated tax return with Liberty Media on such date.
In connection with the Transactions, we entered into a new Tax Sharing Agreement with Liberty Media. The Tax Sharing Agreement generally allocates taxes, tax benefits, tax items, and tax-related losses between Liberty Media and us in a manner consistent with the tax sharing policies of Liberty Media in effect prior to the Split-Off, with taxes, tax benefits and tax items attributable to the assets, liabilities and activities attributed to the Liberty Formula One Group and the Liberty Live Group being allocated to Liberty Media, and taxes, tax benefits and tax items attributable to the assets, liabilities and activities attributed to the Liberty SiriusXM Group being allocated to us. In addition, the Tax Sharing Agreement includes additional
provisions related to the manner in which any taxes or tax-related losses arising from the Split-Off will be allocated between the parties and provides restrictive covenants intended to preserve the generally tax-free treatment of the Transactions. The failure by a party to comply with its restrictive covenants may change the general allocation of taxes, tax benefits and tax items between the parties related to the Transactions. The parties have agreed to indemnify each other for taxes and losses allocated to them under the Tax Sharing Agreement and for taxes and losses arising from a breach by them of their respective covenants and obligations under the Tax Sharing Agreement. The Tax Sharing Agreement also includes provisions addressing the filing of tax returns, control of tax audits, cooperation on tax matters, retention of tax records, indemnification, and other tax matters.
For the period January 1, 2024 through September 9, 2024, our current tax expense is the amount of tax payable on the basis of a hypothetical, current-year separate return. We provided deferred taxes on temporary differences and on any carryforwards that we could claim on our hypothetical and actual returns and assess the need for a valuation allowance on the basis of our projected separate return results. Any difference between the tax expense (or benefit) allocated to us under the short year one separate return method and payments to be made for (or received from) Liberty Media for tax expense are treated as either dividends or capital contributions. Subsequent to September 9, 2024 and as a result of the Split-Off, our current tax expense represents taxes attributable to the business carried on by us on a standalone basis.

Income tax expense consisted of the following:
  For the Years Ended December 31,
  2024 2023 2022
Current taxes:      
Federal $ 297  $ 205  $ 80 
State 72  57  48 
Foreign
 2  —  — 
Total current taxes expense
 371  262  128 
Deferred taxes:      
Federal (165) (30) 203 
State 4  (10) 37 
Total deferred taxes (benefit) expense
 (161) (40) 240 
Total income tax expense $ 210  $ 222  $ 368 
The following table presents a reconciliation of the U.S. federal statutory tax rate and our effective tax rate:
  For the Years Ended December 31,
  2024 2023 2022
Federal tax expense, at statutory rate 21.0  % 21.0  % 21.0  %
State income tax expense, net of federal benefit 4.0  % 4.9  % 4.2  %
Tax equity Investments, Inclusive of Tax Equity Credit 1.9  % (1.5) % —  %
R&D Tax Credits 1.9  % (8.3) % (1.7) %
Change in valuation allowance (0.3) % (2.1) % 2.3  %
Share-based compensation (1.3) % 1.8  % (1.0) %
Impact of nondeductible compensation (0.4) % 1.0  % 1.0  %
Goodwill impairment (37.8) % —  % —  %
Uncertain tax positions (0.3) % 0.6  % (0.8) %
Convertible Notes 1.3  % 2.7  % (0.5) %
Intergroup interests —  % (1.2) % 0.3  %
Other, net (1.3) % (0.6) % —  %
Effective tax rate (11.3) % 18.3  % 24.8  %
Our effective tax rate of (11.3)% for the year ended December 31, 2024 was primarily driven by federal and state income tax expense, offset by the nondeductible impairment of goodwill. Our effective tax rate of 18.3% for the year ended
December 31, 2023 was primarily driven by federal and state income tax expense, partially offset by the benefits related to research and development and certain other credits, as well as a release in state valuation allowance. Our effective tax rate of 24.8% for the year ended December 31, 2022 was primarily driven by federal and state income tax expense as well as changes in state valuation allowance, partially offset by a benefit related to research and development and certain other credits. 
Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences can be carried forward under tax law.  Our evaluation of the realizability of deferred tax assets considers both positive and negative evidence, including historical financial performance, scheduled reversal of deferred tax assets and liabilities, projected taxable income and tax planning strategies.  The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified.  A valuation allowance is recognized when, based on the weight of all available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets will not be realized.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities, shown before jurisdictional netting, are presented below:
  For the Years Ended December 31,
  2024 2023
Deferred tax assets:    
Net operating loss carryforwards and tax credits $ 321  $ 368 
Other accrued liabilities 44  89 
Accrued stock compensation 53  56 
Deferred revenue 46  42 
Investments 102  — 
Other future deductible amounts 117  127 
Total deferred tax assets 683  682 
Deferred tax liabilities:    
Intangible assets (2,550) (2,576)
Fixed assets (124) (233)
Debt (3) (15)
Investments —  (29)
Total deferred tax liabilities (2,677) (2,853)
Net deferred tax liabilities before valuation allowance
 (1,994) (2,171)
Valuation allowance (93) (88)
Total net deferred tax liability
 $ (2,087) $ (2,259)
Net operating loss carryforwards and tax credits decreased as a result of the utilization of net operating losses related to current year taxable income. For the years ended December 31, 2024 and 2023, we recorded $183 and $76 for state and federal tax credits, respectively. As of December 31, 2024, our gross federal net operating loss carryforwards were approximately $199 which are subject to Section 382 limitations.
As of December 31, 2024 and 2023, we had a valuation allowance related to deferred tax assets of $93 and $88, respectively, which were not likely to be realized due to the timing of certain state net operating loss limitations. During the year ended December 31, 2024, our valuation allowance increased primarily as a result of the impact of a decrease in forecasted earnings, resulting in lower projected utilization of net operating losses.
ASC 740, Income Taxes, requires a company to first determine whether it is more likely than not that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and
have full knowledge of all relevant information.  A tax position that meets this more likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.  If the tax position is not more likely than not to be sustained, the gross amount of the unrecognized tax position will not be recorded in the financial statements but will be shown in tabular format within the uncertain income tax positions. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs due to the following conditions: (1) the tax position is “more likely than not” to be sustained, (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired.  A number of years may elapse before an uncertain tax position is effectively settled or until there is a lapse in the applicable statute of limitations.  We record interest and penalties related to uncertain tax positions in Income tax expense in our audited consolidated statements of operations.
We have made, and expect to make, certain tax-efficient investments in clean energy technologies. These include investments in entities that own projects and technologies related to industrial carbon capture and storage. These investments will produce tax credits under Section 45Q of the Internal Revenue Code and related tax losses.
During the year ended December 31, 2024, we recognized net tax benefits of $32 related to our tax equity investments. These recognized net tax benefits were recorded to Income tax expense in our audited consolidated statement of operations. During the year ended December 31, 2024, the net tax benefits included tax credits and other income tax benefits of $153 which was partially offset by amortization expense of $121.
As of December 31, 2024 and 2023, we had unrecognized tax benefits and uncertain tax positions of $201 and $171, respectively.  If recognized, $201 of unrecognized tax benefits would affect our effective tax rate.  Uncertain tax positions are recognized in Other long-term liabilities which, as of December 31, 2024 and 2023 were $76 and $50, respectively, including accrued interest.   
We have state income tax audits pending.  We do not expect the ultimate outcome of these audits to have a material adverse effect on our financial position or results of operations.  We also do not currently anticipate that our existing reserves related to uncertain tax positions as of December 31, 2024 will significantly increase or decrease during the year ending December 31, 2025. Various events could cause our current expectations to change. Should our position with respect to the majority of these uncertain tax positions be upheld, the effect would be recorded in our consolidated statements of operations as part of the income tax provision.  We recorded interest expense of $4 and $2 for the years ended December 31, 2024 and 2023, respectively, related to unrecognized tax benefits.
Changes in our unrecognized tax benefits and uncertain tax positions from January 1 through December 31 are set forth below:
  2024 2023
Balance, beginning of year $ 171  $ 198 
Increases in tax positions for prior years 5  4 
Increases in tax positions for current year 27  32 
Decreases in tax positions for prior years —  (2)
Decreases in tax positions for current years (2) (3)
Decreases related to settlement with taxing authorities —  (58)
Balance, end of year $ 201  $ 171